IMF director urges ‘financial inclusion’ via digitalization

October 18, 2023 Coin Telegraph

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IMF managing director Kristalina Georgieva says digitalization is “the most important way” to scale up financial inclusion.

During her opening speech at the International Monetary Fund’s (IMF) seminar on financial inclusion in Marrakesh, Morocco, IMF Managing Director Kristalina Georgieva said digitalization is “the most important way” to scale up financial inclusion.

“It is digital that moves help to people, investment and ability of the economy to accelerate,” Georgieva said, citing digital cash transfers in the African nation of Togo put in place during the COVID-19 pandemic. She urged for comprehensive national strategies for financial inclusion but reminded the audience about the financial stability risks, which often correlate with digitalization.

The IMF has recently been active in its analysis of necessary crypto regulations. On Sept. 29, it proposed a crypto-risk assessment matrix (C-RAM) for countries to spot indicators and triggers of potential risks in the sector.

The IMF’s Synthesis paper — jointly prepared with the Bank for International Settlements (BIS) — was unanimously adopted by the “G20 Finance Ministers and Central Bank Governors Communique” in October.

The paper advocates for comprehensive oversight of crypto instead of a blanket ban. Its high-level recommendations include cross-border cooperation and information sharing between regulators, a demand for comprehensive governance and risk management frameworks for crypto companies, and a guarantee of access to relevant data provided by companies to the authorities.

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Banks’ crypto exposure must be disclosed — BIS’ Basel Committee

October 17, 2023 Coin Telegraph

Banking

The proposed regulations are currently open to the public for comments, and if approved, they will come into effect by Jan. 1, 2025.

The Basel Committee on Banking Supervision of the Bank for International Settlements (BIS) released a consultation paper on Oct. 17, proposing to make it compulsory for banks to disclose their crypto exposure.

The Basel Committee comprises central banks and financial authorities from 28 jurisdictions and is a forum for regulatory cooperation on banking supervisory matters. The latest consultation paper is based on the disclosure guidelines in the final prudential standard on how banks should handle their exposure to crypto assets released in December 2022.

The consultation paper aims to set a standardized “disclosure table and set of templates for banks’ crypto-asset exposures,” with a proposed implementation date of Jan. 1, 2025. The Basel Committee has opened the proposal for public comment until Jan. 31, 2024, after which the results will be published on its website.

Under the new proposed regulations, banks would be required to provide quantitative data on exposures to crypto assets and the corresponding capital and liquidity requirements. Banks would also be required to offer qualitative data on their activities linked to cryptocurrencies.

Additionally, banks would be required to offer information on the accounting classifications of their exposure to crypto assets and liabilities. In its proposal, the committee claimed that using a uniform disclosure format will encourage the application of market discipline and lessen information asymmetry between banks and market participants.

The committee also reviewed crypto assets and bank exposure in June. At the time, the committee didn’t delve deeply into the topic, mentioning only that it was focusing on permissionless blockchains and the eligibility criteria for “Group 1” stablecoins.

The BIS has been actively involved in crypto consultations and examining the regulatory aspect of decentralized technology. Recently, the BIS and a handful of European central banks published details of a concept to develop a system to track international flows of cryptocurrencies.

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Basel Committee to consider disclosure requirements for banks’ crypto assets

October 6, 2023 Coin Telegraph

Banking

The committee already imposes a limit on crypto holdings in bank reserves, but the concentration of crypto in a small number of banks contributed to the March crisis, it said.

Fallout from the banking crisis earlier this year continues as the Basel Committee on Banking Supervision considers requiring banks to disclose their crypto asset holdings. The committee, which operates under the aegis of the Bank for International Settlements, identified holding crypto as one of the factors that led to the demise of several banks in March.

At its meeting on Oct. 4-5, the committee looked at the causes behind the failures of Silicon Valley Bank (SVB), Signature Bank of New York (SBNY) and First Republic Bank (FRC), as well as the near-failure of Credit Suisse (CS), which was bought by its competitor UBS.

According to the committee’s report, three structural trends may have indirectly contributed to the banks’ failures. They were the increasing role of nonbank intermediation in recent years, crypto assets concentrated in a small number of banks and the ability of customers to move their funds faster due to increasing digitalization.

The report also examined policy issues in detail.

*Supervisory and regulatory issues in the banking crisis of 2023. Source: Basel Committee*

The report especially highlighted the role of crypto in the failure of Signature Bank. The committee found:

SBNY’s significant client concentration of digital asset companies put it in a precarious position when the “crypto winter” hit in 2022. […] SBNY’s poor governance and inadequate risk management practices put the bank in a position where it could not effectively manage its liquidity in a time of stress.

SBNY was closed by the New York State Department of Financial Services on March 12. The regulators stated at the time that crypto was not behind their decision.

The discussion is not an indication of planned revisions to the Basel Framework, the report said. The committee amended its framework to limit crypto assets in bank reserves to 2% in January.

At its 4-5 October meeting, the #BaselCommittee agreed to consult on cryptoasset and climate disclosures, approved the annual G-SIB assessment and published its report into the banking turmoil of early 2023 #BaselIII #FinancialRegulation https://t.co/iLVbtP2VzS pic.twitter.com/aSRw7YYHP7
— Bank for International Settlements (@BIS_org) October 5, 2023

A statement accompanying the report said a consultation paper on crypto asset exposure disclosure would be published soon.

This is only the latest rehash of the banks’ difficult days in March. The United States Federal Reserve Bank and Federal Deposit Insurance Corporation (FDIC) published their conclusions on the events in April, with the FDIC taking another look at it in August.

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Bank for International Settlements and European Central Banks Developing Crypto and DeFi-Tracking System

October 4, 2023 The Daily Hodl

CBDC lays foundation for new global monetary system: French central bank

October 4, 2023 Coin Telegraph

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The first deputy governor at Banque de France calls central bank digital currency “the catalyst for improving cross-border payments.“

Representatives of Banque de France, the French central bank, have embraced the global perspective on the central bank digital currency (CBDC) discussion, touting it as the foundation of a new international monetary system.

On Oct.3, Denis Beau, the first deputy governor at Banque de France, called the CBDC “the catalyst for improving cross-border payments by enabling the build-up of a new international monetary system.” The official emphasizes the necessity of considering cross-border issue around CBDCs from the outset and not as an afterthought.

Beau sees several paths for developing a CBDC. The first is the development of common standards and interoperability between wholesale CBDCs and legacy systems. The second — promoted by the International Monetary Fund (IMF) and the Bank for International Settlements (BIS) — is the development of regional or global CBDC platforms. Wholesale CBDCs could be standardized to be exchanged directly on these platforms and perform payment versus payment and delivery versus payment transactions.

Beau cited the example of Project Mariana, which explored the possibilities of an automated market maker (AMM). The project, involving the Banque de France, the Monetary Authority of Singapore and the Swiss National Bank, successfully concluded in late September.

The official talked not only about the CBDCs but also about the tokenization of finance. He expressed his belief that the public sector must support the private sector more to enable the full potential of blockchain while limiting the risks. In his opinion, tokenized “central bank money availability” and tokenized assets are allies rather than competitors.

Bank of Korea to start CBDC infrastructure pilot

October 4, 2023 Coin Telegraph

BIS

The pilot will include private banks and public institutions, while the Bank for International Settlements (BIS) will support it with technical expertise.

South Korea joins a growing number of nations researching central bank digital currencies (CBDCs). The Bank of Korea (BOK) will launch the pilot project, exploring the technical infrastructure for a digital currency.

The joint announcement of the CBDC pilot by the BOK, the Financial Services Commission (FSC), and the Financial Supervisory Service (FSS) was published on Oct.4. According to the document, the project will assess the viability of a future monetary system grounded on "wholesale CBDCs."

The pilot will include private banks and public institutions, while the Bank for International Settlements (BIS) will support it with technical expertise. The BOK is going to test both retail and wholesale types of CBDC. Within the experimental framework of the latter, the banks will tokenize their deposits and circulate them in the network, monitored by the BOK, FSC and FSS. The live testing of the retail CBDC should begin right after the system setup in Q4 2024.

As it usually goes with the CBDC tests, the BOK notes that the exploring doesn’t equal the inevitable implementation. However, the First Deputy Governor of the FSS, Lee Myung-soon, called the pilot a step to the future monetary system:

"The BOK has persistently pursued technological research related to CBDC. This test, building upon past achievements, represents a significant step towards creating a prototype for the future monetary system."

These words resonated with a statement made by one of the chief executives of France’s Central Bank on Sept. 3. In his speech, Denis Beau, the first deputy governor at Banque de France, called the CBDC “the catalyst for improving cross-border payments by enabling the build-up of a new international monetary system.”

BIS and Three Central Banks Successfully Complete CBDC Experiment Using DeFi Networks

October 3, 2023 The Daily Hodl

France, Singapore and Switzerland test cross-border CBDCs

September 28, 2023 Coin Telegraph

BIS

Project Mariana was developed under the aegis of the Bank for International Settlements.

The Bank for International Settlements (BIS) and the central banks of France, Singapore and Switzerland concluded a joint test of the cross-border trading and settlement of wholesale central bank digital currencies (CBDCs). The Banque de France issued the report on Sept. 28.

The so-called Project Mariana was developed by the Banque de France, the Monetary Authority of Singapore and the Swiss National Bank under the aegis of the BIS. It has tested the cross-border trading and settlement of hypothetical euro, Singapore dollar and Swiss franc CBDCs between simulated financial institutions using decentralized finance (DeFi) technology concepts on a public blockchain.

The concept works by using a common token standard on a public blockchain, bridges for the seamless transfer of CBDCs between different networks, and a specific type of decentralized exchange to trade and settle spot foreign exchange transactions automatically.

According to the release, the participants consider the experiment successful, though “further research and experimentation is needed.” It also makes a reservation about the experimental nature of Project Mariana, stating:

“Project Mariana is purely experimental and does not indicate that any of the partner central banks intend to issue CBDC or endorse DeFi or a particular technological solution.”

The day before the release of Project Mariana went public, BIS general manager Agustín Carstens spoke about the necessity of clarifying the national legal frameworks in those countries where the central banks don’t have a right to issue CBDC.

The BIS remains the principal promoter of cross-border CBDCs, with several pilot tests being run around the globe. Thus, in September, the central banks of Hong Kong and Israel released the results of their Project Sela, while Hong Kong Monetary Authority CEO Eddie Yue announced the expansion of the Project mBridge, which has already included the central banks of China, Thailand and the United Arab Emirates.

CBDC frameworks must guard user privacy, monetary freedom of choice – BIS chief

September 27, 2023 Coin Telegraph

BIS

BIS general manager Agustín Carstens stresses the importance of legal frameworks that protect CBDC user privacy and maintain monetary freedom of choice.

Legal frameworks that ensure that user privacy and the freedom to choose between central bank digital currencies and other forms of money will be key in driving CDBC adoption, according to the head of the Bank of International Settlements.

Speaking at the BIS Innovation Hub conference in Switzerland on Sept. 27, BIS general manager Agustín Carstens stressed that legal frameworks remain a key consideration in the development and proliferation of CBDCs around the world:

“Most fundamentally, the legitimacy of a CBDC will be derived from the legal authority of the central bank to issue it. That authority needs to be firmly grounded in the law.”

He added that different countries' laws specify what types of money their central bank can issue, which typically includes physical cash as well as credit balances on current and reserve accounts:

“According to an IMF paper published in 2021, close to 80% of central banks are either not allowed to issue a digital currency under their existing laws, or the legal framework is unclear.”

Carstens also referred to a BIS study that indicates 93% of the world’s central banks are engaged in developing CBDCs at various different stages. Considering that most of these institutions are actively looking to meet public demand for digital forms of fiat, The BIS chief said outdated or unclear legal frameworks hindering their deployment was unacceptable.

Criticisms aimed at the potential misuse of CBDCs in regard to social credit scores or standings by their issuers were also addressed. According to Carstens, a CBDC needs to function with a framework of defined rights and obligations.

The BIS general manager says that three core elements are imperative. This includes preserving the privacy of CBDC users and their data, the integrity of the financial system as well as the right of people to choose between a CBDC and other forms of money.

Carstens noted that different countries have differing trends relating to the use of cash and adoption of digital payments and that a retail CBDC may well be expected to coexist alongside cash and commercial bank money:

“A central bank that introduces a CBDC should increase the choices for society, not diminish them.

As previously reported by Cointelegraph, China continues to drive the development and use of its Digital Yuan CBDC program. The latest update to its pilot e-CNY app now allows tourists heading to China to pre-charge their digital yuan wallets using Visa and Mastercard payment.

Meanwhile the CBDC “Anti-Surveillance State Act” bill aimed at preventing the U.S. Federal Reserve from issuing a CBDC passed a vote in the the House Financial Services Committee on Sept. 21. The bill will head to congress next as it looks to fight “state control over currency” .

mBridge CBDC project preparing for new members, launch of minimum viable product

September 25, 2023 Coin Telegraph

BIS

The project now includes central and commercial banks of China, Hong Kong, Thailand and the UAE. Future new members were not identified.

Project mBridge may soon see significant expansion, according to Hong Kong Monetary Authority (HKMA) CEO Eddie Yue. He outlined the plans for the central bank digital currency (CBDC) project in a speech in Shanghai.

Yue said tests have shown mBridge to provide faster, cheaper and more transparent cross-border payments. The project was initiated in 2021 with the participation of the HKMA, and the central banks of China, Thailand and the United Arab Emirates, as well as commercial banks from each of those jurisdictions and the Bank for International Settlements Innovation Hub (BISIH).

Now mBridge will expand and be commercialized. Yue said:

“We are expecting to welcome more fellow central banks to join this open platform. And very soon we will launch what we call a minimum viable product, with the aim of paving the way for the gradual commercialisation of mBridge.”

Central banking officials connected with the project have said previously that a central bank does not have to have its own CBDC to participate in it. All of the current participants have CBDCs at the stage of pilot projects. The only countries that have launched CBDCs are the Bahamas, Jamaica and Nigeria, according to the website cbdctracker.org.

mBridge’s progress has already been noticed in the United States Congress. Ranking member of the House Financial Services Committee Maxine Waters expressed her concern during the markup of Representative Tom Emmer’s CBDC Anti-Surveillance State Act on Sept. 20 that the project could be leveraged to evade economic sanctions. The key to effective sanctions evasion by CBDCs is adoption, experts say.

*Commercial banks participating in Project mBridge. Source: BISIH*

mBridge is the only international CBDC project China has taken part in. Its digital yuan is by far the world’s largest CBDC pilot, and the People’s Bank of China has made several deals with international companies and commercial banks to further the adoption of the digital yuan. Thus, BNP Paribas China and DBS Bank China have made integrations with the digital yuan available to their corporate clients in 2023.

Eddie Yue Wai-man, chief executive of the Hong Kong Monetary Authority, was appointed to a key post at the Bank for International Settlements, a top international financial institution backed by most of the world’s central bank https://t.co/ZY7a78gFBL
— Caixin Global (@caixin) September 14, 2023

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