The New Money Brief covers the global revolution underway in our shared financial infrastructure, brought on by the rise of digital currencies.
Delivered several times a week. Created and edited by Marc Andrew
The Bank for International Settlements (BIS) published its annual economic report named “A Tale of Three Journeys,” which emphasized the importance of digital innovation in the monetary and financial system, highlighting the potential for tokenization as the next major technological leap.
The report suggests that tokenization, the digital representation of money and assets on a programmable platform, could revolutionize the current financial system and facilitate new economic arrangements that were previously impossible.
According to the Bank for International Settlements:
Tokenization could enhance the capabilities of the monetary and financial system, not just by improving current processes but also by enabling entirely new economic arrangements that are impossible in today’s system. In short, tokenization could improve the old and enable the new.
Within the report, the BIS also presented a blueprint for the future monetary system, envisioning a “unified ledger” as a new financial market infrastructure (FMI).
The blueprint includes three key elements: “central bank digital currencies (CBDCs), private tokenized money in the form of tokenized deposits, and tokenized versions of other financial or real assets, depending on the particular use case.”
Source: Finbold
Ed. note: notably, the BIS slammed crypto in its report, but did not mention bitcoin by name, whose innovation of a global unified ledger is its clear inspiration. Nik Bhatia covered this well, here.
A permissionless unified ledger is fundamentally different than a permissioned one.
When considering the potential of a global unified ledger for the world’s monetary system, run out of the Bank of International Settlements in Basel, ask yourself: which edition of a United States Congress, or Fed Chairman, or U.S. President will consent to such rule-making from abroad? The answer is none of them.
The BIS embrace of tokenisation is a big story. But if the now-agreed end point is a common programmable platform, I don't see how layered bitcoin doesn't beat a patched together group of CBDC’s.
On with the clips!
Bank for International Settlements, Basel
A total of 130 countries representing 98% of the global economy are now exploring digital versions of their currencies, with almost half in advanced development, pilot or launch stages, a closely-followed study shows.
The research by the U.S.-based Atlantic Council think tank published on Wednesday said significant progress over the past six months meant that all G20 countries with the exception of Argentina were now in one of those advanced phases.
Eleven countries, including a number in the Caribbean, and Nigeria, have already launched central bank digital currencies (CBDCs) as they are known, while pilot testing in China now reaches 260 million people and covers 200 scenarios from e-commerce to government stimulus payments.
Two other big emerging economies, India and Brazil, also plan to launch digital currencies next year. The European Central Bank is on track to begin its digital euro pilot ahead of a possible launch in 2028, while over 20 other countries will also take significant steps towards pilots this year.
Source: Reuters
Bank regulation gets far fewer headlines than monetary controls, but it has just as much to do with the future of the economy.
Every financial conflagration over the last century has been followed by a soul-searching review of how it could have been prevented, followed by adjustments in regulation that promise things will be better in the future. Inevitably, bank executives are accused of being reckless and taking risks they would not have taken if they just had been subject to even more penalties than they already are. And regulators reluctantly admit they could have done a better job if Congress had given them just a few more powers than the vast constellation they already have.
The Federal Reserve Board’s report on the failure of Silicon Valley Bank overseen by Vice Chair for Supervision Michael Barr follows this script. But as Barr now initiates a new six-month review to overhaul Federal Reserve bank supervision, an uncharacteristic rift at the Fed has appeared.
Source: The Hill
Singapore’s central bank has proposed a common protocol to specify conditions for the use of digital currencies as financial institutions trial the use of purpose-bound money in the city-state.
The Monetary Authority of Singapore on Wednesday published a whitepaper detailing technical specifications on the life cycle of purpose-bound money, as well as how arrangements could be programmed such that money is transferred only upon fulfillment of service or terms of use, the regulator said in a statement.
The purpose-bound money protocol is designed to work with different ledger technologies and forms of money, enabling users to access digital money using their preferred wallet provider, MAS said. With a common protocol, the same infrastructure can be used across multiple use cases, it added. Digital money includes central bank digital currencies, tokenized bank deposits and stablecoins on a distributed ledger.
Source: Bloomberg
The Swiss National Bank (SNB) is to issue a wholesale central bank digital currency (CBDC) on Switzerland's SIX digital exchange as part of a pilot, the central bank's chairman said at a conference in Zurich on Monday.
"This is not just an experiment, it will be real money equivalent to bank reserves and the objective is to test real transactions with market participants," Chairman Thomas Jordan said at the Point Zero Forum.
Jordan said the pilot project, which will start "soon", was intended at the moment to be for a limited time.
Central banks across the world are studying digital versions of their currencies to avoid leaving digital payments to the private sector, as the decline of cash has accelerated in some cases due to the COVID-19 pandemic.
Source: Reuters
JPMorgan Coin’s EU Push Comes Amid Looming Battle Between Stablecoins and Tokenized Deposits
Stablecoins have been on the payments scene, so to speak, since 2014. The rise of the coins, which at their most basic level represent digital offerings “backed” by an external asset, such as the U.S. dollar, has been a volatile one.
Generally speaking, the market capitalization the sector offers a shorthand take on sentiment surrounding the space.
And as reported by sites such as AMB Crypto, the market cap of stablecoins stands at roughly $127 billion, the lowest level seen since the fall of 2021.
Part of the retracement may be tied to the fact that the regulatory landscape is still taking shape, where we reported that the Securities and Exchange Commission (SEC) is tightening its gaze of the industry, where private coin issuance has been a hallmark. And elsewhere, there have been instances when the coins have lost their pegs, especially during the banking turmoil that followed in the wake of the Silicon Valley Bank and Signature Bank collapses.
In the meantime, there’s evidence that financial institutions are bringing their own stablecoin offerings to market, but with some important distinctions, including the fact that they act as deposit tokens and clients will be using them internally (at the bank) to settle transactions. To that end, and as reported this past week, JPMorgan Chase has launched euro-denominated transactions with its blockchain-based JPM Coin. The latest launch follows in the footsteps of a dollar-denominated coin that debuted from JPMorgan in 2019.
Source: PYMNTS
Hong Kong’s attempt at exploring an international central bank digital currency (CBDC) payment functionality with China has begun tearing at the seams following consumer complaints.
The plan involves using China’s digital yuan to settle cross-border transactions between both regions, a scheme in the works since 2020. Local publication Sing Tao Daily stated that the project completed its second pilot in June with several nagging issues.
Led by the Bank of China (Hong Kong) Limited, the second testing phase involved experimentation in small high-frequency transactions in retail and restaurants using the digital yuan. Beginning with an initial pool of 500 retail participants, Bank of China expanded the group to 2,100, focusing on UBuy stores and online retailer JD.com.
The second iteration also drew collaboration from leading commercial banks in Hong Kong, including Standard Chartered, HSBC, and Hang Seng Bank.
While the project recorded a range of positives, certain flaws showed up against the future of the study. Consumers complained about the limited number of merchants accepting the digital yuan and the lack of technical expertise to operate the system.
Source: COINGEEK
Mitsubishi UFJ Financial Group (MUFG) – the largest finance institution in Japan – is considering issuing global stablecoins via its blockchain platform. The bank has previously revealed plans to introduce such tokens tied to the value of the Japanese yen.
As reported by Bloomberg, the entity is in talks with industry leaders and other companies on minting stablecoins pegged to foreign currencies, such as the US dollar. To do so, it intends to use its blockchain platform Progmat, Vice President of Product Tatsuya Saito said.
The executive added that potential partners in the move are several local financial institutions, entertainment firms, and other non-financial businesses. Inquiries also come from foreign organizations, meaning Japan could become a global hub for stablecoins, Saito envisioned.
Such financial products have been the subject of enhanced scrutiny in the Asian country, especially after the collapse of the algorithmic stablecoin UST last year, which triggered multi-billion investor losses.
Source: CryptoPotato
Central bank digital currencies (CBDCs) are becoming a reality around the world, with more than 130 countries now exploring ‘digital cash’. Of the G20 economies, 18 are beyond the research stage and into either the development or pilot stage. Standards are being set on privacy, cybersecurity and combating illicit finance. Thus, any jurisdiction wanting to contribute to such standards needs to understand the complex trade-offs involved in creating a CBDC and be an active participant in global cross-border testing.
The United States and the euro area are still at the relatively early stages. So far in 2023, the US has not advanced in its thinking on what a retail digital dollar would or should look like. Political rancour over the issue, including speeches from presidential candidate Ron DeSantis, have frozen policymakers in Washington.
That doesn’t mean there is no progress. The New York Federal Reserve is engaged in cross-border testing of bank-to-bank digital currency, known as wholesale CBDCs. They have shown that near instant settlement between banks across borders is possible. For those concerned by competition with China, such cross-border application of CBDCs (and how they can be used to bypass the dollar and euro) should be the primary concern.
Source: bruegel
Federal Reserve Chairman Jerome Powell argued for the need for strong central-bank oversight in stablecoin regulations being crafted by lawmakers in the House Financial Services Committee.
"We do see payment stablecoins as a form of money, and in all advanced economies, the ultimate source of credibility in money is the central bank," Powell said in testimony today at a twice-yearly hearing on monetary policy. "We believe it would be appropriate to have quite a robust federal role."
Powell also noted that the Fed's staff has been involved in talks with lawmakers from both parties on the crypto legislation members of the committee have been working on. He observed in his testimony that the industry "appears to have some staying power," though Powell also suggested the market has fallen sharply since last year.
Source: CoinDesk
The European Central Bank (ECB) board member Fabio Panetta delivered a scathing crypto speech this week. While slamming cryptocurrencies he also advised central banks to resist the urge to allow stablecoin issuers access to central bank reserves.
He noted that if a stablecoin issuer can put the money at the central bank, it eliminates the investment risk. Hence the stablecoin becomes a close substitute for central bank money. “A stablecoin could displace sovereign money by using the large customer network of a big tech, with far-reaching implications,” said Mr. Panetta.
In the United States, the Treasury has acknowledged the potential for central bank deposits to provide the safest asset backing. And the current draft U.S. stablecoin Bill allows for it. So Congress might remove that ability of federal agencies to block it.