Mexican CBDC Unlikely to Be Ready by 2024

January 8, 2023 Bitcoin.com

Central Banks to set standards on banks’ crypto exposure – BIS

December 17, 2022 Coin Telegraph

BIS

The new standard limits crypto reserves among banks to 2% by 2025, and goes into effect on January 1, 2025.

A global standard for banks' exposure to crypto assets has been endorsed by the Group of Central Bank Governors and Heads of Supervision (GHOS) of the Bank for International Settlements (BIS). The standard, which sets a limit of 2% on crypto reserves among banks, must be implemented on January 1, 2025, according to an official announcement on Dec. 16.

The report, dubbed "Prudential treatment of cryptoasset exposures", introduces the final standard structure for banks regarding exposure to digital assets, including tonenized traditional assets, stablecoins and unbacked cryptocurrencies, as well as feedback from stakeholders collected in a consultation launched in June. The Basel Committee on Banking Supervision noted the report will soon be incorporated as a new chapter into the consolidated Basel Framework.

BIS's announcement highlights that the global banking system's direct exposure to digital assets remains relatively low, but recent developments have outlined "the importance of having a strong minimum framework for internationally active banks to mitigate risks." It also stated:

"Unbacked cryptoassets and stablecoins with ineffective stabilisation mechanisms will be subject to a conservative prudential treatment. The standard will provide a robust and prudent global regulatory framework for internationally active banks' exposures to cryptoassets that promotes responsible innovation while preserving financial stability."

Pablo Hernández de Cos, chair of the Basel Committee and Governor of the Bank of Spain, noted about the standard:

"The Committee's standard on cryptoasset is a further example of our commitment, willingness and ability to act in a globally coordinated way to mitigate emerging financial stability risks. The Committee's work programme for 2023–24 endorsed by GHOS today seeks to further strengthen the regulation, supervision and practices of banks worldwide. In particular, it focuses on emerging risks, digitalisation, climate-related financial risks and monitoring and implementing Basel III."

The BIS disclosed in September the results of its multi-jurisdictional central bank digital currency (CBDC) pilot, following a month-long testing phase that enabled cross-border transactions worth $22 million. The pilot program involved the central banks of Hong Kong, Thailand, China, and the United Arab Emirates, as well as 20 commercial banks from those regions. According to a report by the BIS published in June, around 90% of central banks are considering the adoption of CBDCs.

Bitcoin buyers drawn by rising prices, not dislike for banks: BIS report

November 15, 2022 Coin Telegraph

Bank for International Settlements

The Bank for International Settlements (BIS) studied the main motives behind Bitcoin adoption by retail investors.

Bitcoin (BTC) investors are more likely enticed by the cryptocurrency’s rising prices, rather than their dislike of banks or its perceived use as a store of value, a new report from the Bank for International Settlements (BIS) suggests.

In a “BIS Working Papers” report published on Nov. 14, the central bank body looked into the relationship between Bitcoin prices, crypto trading, and retail adoption.

It studied the drivers of crypto adoption by retail investors using crypto trading app downloads as a proxy for adoption and user investments at the time of download.

It found that “a rise in the price of Bitcoin is associated with a significant increase in new users, ie entry of new investors” and that most retail investors “downloaded crypto apps when prices were high.”

The BIS presented evidence that daily downloads of crypto exchange apps increased with the rapidly rising price of Bitcoin between Jul. and Nov. 2021, peaking when Bitcoin’s price was between $55,000 and $60,000 roughly one month before its Nov. 2021 all-time high of just over $69,000.

It added 40% of crypto app users were men under 35 and were part of the most “risk-seeking” segment of the population, from this, it surmised:

“Users [are] being drawn to Bitcoin by rising prices — rather than a dislike for traditional banks, the search for a store of value or distrust in public institutions.”

“The price of Bitcoin remains the most important factor when we control for global uncertainty or volatility, contradicting explanations based on Bitcoin as a safe haven,” it added.

The BIS assumed app users purchased Bitcoin at the time of downloading a crypto app and subsequently supposed that up to “81% of users would have lost money” if they had purchased Bitcoin over $20,000.

*Daily downloads of crypto-exchange apps by Bitcoin Price at the time of first download. Image:* *BIS*

The BIS’s assumptions seemingly correlate with data from blockchain analysis firm Glassnode, who on Nov. 14 confirmed that just over half of Bitcoin addresses are in profit, reaching a two-year low.

#Bitcoin $BTC Percent Addresses in Profit (7d MA) just reached a 2-year low of 51.881%

View metric:https://t.co/ik5IkrdoPk pic.twitter.com/boVDTqG8YL
— glassnode alerts (@glassnodealerts) November 14, 2022

The BIS added its analysis of blockchain data found as Bitcoin prices rose, smaller users purchased, and “the largest holders (the so-called ‘whales’ or ‘humpbacks’) were selling – making a return at the smaller users’ expense.”

It also documented the geography of crypto app adoption and found between Aug. 2015 to Jun. 2022 that Turkey, Singapore, the United States, and the United Kingdom had the highest total downloads per 100,000 people respectively.

India and China had the lowest, the latter seeing only 1,000 crypto app downloads per 100,000 people with the BIS opining that greater legal restrictions on crypto hamper retail adoption in those countries.

Bank of International Settlement will test DeFi implementation in forex CBDC markets

November 2, 2022 Coin Telegraph

BIS

The centralized financial institution says the automated market making technology in DeFi can serve as a 'basis for a new generation of financial infrastructure."

According to a new announcement on Wednesday, the Bank of International Settlement, or BIS, along with the central banks of France, Singapore, and Switzerland, will be embarking on a new initiative dubbed "Project Mariana" in its exploration of blockchain technology. Project Mariana intends to use decentralized finance, or DeFi, protocols to automate foreign exchange markets and settlement.

Project Mariana explores using automated market makers for the cross-border exchange of hypothetical CHF, EUR and S$ wholesale CBDCs. It's a #BISInnovationHub joint venture with the French, Swiss & Singapore #CentralBanks @banquedefrance @MAS_sg @SNB_BNS https://t.co/GsNLpXZlsD pic.twitter.com/2tMitZcNF2
— Bank for International Settlements (@BIS_org) November 2, 2022

This includes using DeFi protocols to stimulate the hypothetical exchange of cross-border transactions between the Swiss Franc, Euro, and Singaporean Dollar wholesale central bank digital currencies, or CBDCs. The technologies involved in building Project Mariana include that of smart contracts and automated market maker protocols, or AMMs. Researchers seek to combine pooled liquidity in AMMs with innovative algorithms to determine the prices of tokenized assets, potentially developing into a basis of exchanges for CBDCs.

As an organization created by central banks to regulate the international financial framework, BIS wrote that, "automated market makers can become the basis for a new generation of financial infrastructure." Cecilia Skingsley, head of innovation hub at BIS, added:

"This pioneering project pushes our CBDC research into innovative frontiers, incorporating some of the promising ideas of the DeFi ecosystem. Mariana also marks the first collaboration across Innovation Hub Centres; expect to see more in the future."

BIS and collaborating central banks have set a tentative date of mid-2023 for delivering a proof of concept. The financial institution was previously skeptical of digital assets due to their inherent price variance and lack of a unified regulatory framework. Nevertheless, BIS has praised elements of distributed ledger networks, such as their technological prowess relative to fiat money. According to a recent report authored by BIS, 90% of central banks worldwide are currently researching the utility of CBDCs.

BIS releases full report on mBridge wholesale CBDC platform after successful pilot

October 26, 2022 Coin Telegraph

BIS

The Bank for International Settlements is on a roll with its third publication within days detailing how commercial banks in four jurisdictions transferred funds using CBDC.

The Bank for International Settlements (BIS) has released the full details of its mBridge pilot project to use central bank digital currencies (CBDCs) for foreign exchange. Commercial banks in four jurisdictions made cross-border transfers using CBDCs and distributed ledger (blockchain) technology in the project, which was heralded as a success.

Twenty commercial banks in Hong Kong, China, the United Arab Emirates and Thailand used the custom-made mBridge Ledger platform and CBDCs issued by their respective central banks to conduct payment and foreign exchange payment-versus-payment transactions on behalf of their corporate clients between August 15 and September 23. Over $12 million was issued on the platform, facilitating over 160 transactions worth more than $22 million in value.

The mBridge Ledger platform used single-platform, direct-access infrastructure to make real-time, peer-to-peer transactions with the HotStuff+ consensus mechanism. The Dashing dynamic-threshold consensus protocol is also being tested.

The project brought to light a number of policy challenges. According to the authors, the legal categorization of a CBDC is the most pressing issue. They wrote:

“The typical question is whether CBDC on the platform would be classed as currency, a representation of funds on account with the central bank, a debt or something else.”

The new technology raised even more fundamental issues than that:

“Extending access to central bank money directly to foreign participants and conducting transactions on a shared ledger requires further exploration of policy, data privacy and governance considerations.”

Practical matters that will be addressed in 2023 and 2024 include integrating liquidity management and FX price discovery.

The BIS Innovation Hub Hong Kong Centre has produced a series of papers in recent days. The BIS center, along with the Hong Kong Monetary Authority (HKMA) and United Nations Climate Change Global Innovation Hub released the results their Genesis 2.0 project to create tokenized green bonds on Oct. 24. BIS and the HKMA have been studying retail and wholesale CBDCs separately. They published the latest report on their Project Aurum retail CBDC project on Oct. 21.

BIS, UN, Hong Kong Monetary Authority concludes tokenized green bonds trial

October 25, 2022 Coin Telegraph

BIS

Project Genesis 2.0 continued the joint effort of exploring blockchain opportunities for green investments.

The Bank for International Settlements (BIS), the Hong Kong Monetary Authority and the United Nations Climate Change Global Innovation Hub presented the results of their “Genesis 2.0” initiative. The project aims to explore the use of blockchain, smart contracts and the internet of things (IoT) for a global environment cause.

The project resulted in two prototypes of tokenized green bonds, developed by two separate international teams, which are “de facto verified carbon credits” recognized by either international, national or other verification mechanisms.

As specified in the press release from Oct. 24, both prototypes of “green bonds” are developed using blockchain and smart contracts, which ensure the tracking of mitigation outcome interests (MOIs). MOI is an essential concept in the language of environment-conscious economic efforts. It allows issuers to borrow against the delivery of the carbon credits upfront and thus to fund their green economy projects in advance.

The first prototype, developed by Goldman Sachs, Allinfra and Digital Asset, showcased an ability to achieve smart contract-based delivery of bonds and MOIs, and provided source data transparency enabled by IoT technology.

The second prototype, developed by InterOpera in collaboration with Krungthai Bank, Samwoo and Sungshin Cement, was built on an interoperable host chain. With a combination of blockchain, smart contract and application programming interface (API) technologies, it also digitally tracked, delivered and transferred MOIs throughout the full green bond life cycle.

Project Genesis 2.0 came as an extension of Project Genesis 1.0, conducted by the BIS and Hong Kong Monetary Authority in 2021. Back then, other private consortia tested the possibility of tokenization of retail green bonds using both a public blockchain and a permissioned blockchain. Project Genesis 2.0 sought to address issues of greenwashing and the additionality of green bonds.

BIS remains one of the most proactive explorers of the digital economy among multinational institutions. In September, it finished a multi-jurisdictional central bank digital currency (CBDC) pilot after a month-long test phase that facilitated $22 million worth of real-value cross-border transactions.

Hong Kong Presents Digital Currency Prototype, Project Aurum

October 24, 2022 Bitcoin.com

IOSCO demands tighter scrutiny over the ‘finfluencers’

October 14, 2022 Coin Telegraph

BIS

The International Organization of Securities Commissions proposed a set of new measures to address increasing risks in digital marketing.

The Board of the International Organization of Securities Commissions (IOSCO) believes the regulators on both national and international levels need more power to address increasing risks and challenges from the “digitalization of retail marketing and distribution.”

In its report, published on Oct. 12, IOSCO proposes measures for the member countries to consider when determining their policy and enforcement approaches to retail online offerings and marketing, given the new challenges that rise with the proliferation of crypto assets.

Talking about these risks, the report focuses on the use of behavioral and gamification techniques and pays special attention to influencers who participate in crypto marketing, calling them “finfluencers.” Another concept the report quotes is the “digital veil.” According to the IOSCO Secretary General, Martin Moloney:

“Digital fraudsters can hide behind a “digital veil” that makes it difficult for regulators to locate, identify and take action against them.”

The measures themselves are hardly new. IOSCO proposes to oblige the management of the crypto products to take responsibility for the accuracy of the information provided to potential investors on social media and apply “appropriate filtering mechanisms” for financial consumer onboarding.

The set of supervisory capacities that IOSCO recommends for the national regulators to acquire includes regulatory channels to report consumer complaints for misleading and illegal promotions and evidence-tracking processes to cope with the fast pace and changing nature of online information.

More intriguing is the possible legal obligation for the crypto companies to have specific staff qualification and licensing requirements for online marketing staff, which IOSCO also suggests.

Another proposed measure is compliance with third-country regulations — while conducting its services to foreign clients, the company would have to determine whether it could have gotten the license to do so in the client’s home country.

IOSCO has been paying higher attention to crypto this year. In March 2022, it encouraged regulators to understand the implications of decentralized finance (DeFi) developments with regard to their jurisdictions. In July, in collaboration with the Bank for International Settlements (BIS), it published the guidance for the regulation of stablecoin arrangements.

China, Hong Kong, Thailand, and UAE Trial Cross-Border Transactions With Digital Currencies

September 29, 2022 Bitcoin.com

Israel, Norway and Sweden central banks partner with BIS to explore CBDC payments

September 28, 2022 Coin Telegraph

BIS

The Project Icebreaker initiative aimed to improve cross-border payments by reducing costs and increasing speed and transparency, with a final report expected in Q1 2023.

The Bank for International Settlements, or BIS, has reported it will be partnering with the central banks of Israel, Norway and Sweden to explore international retail and remittance payments use cases for central bank digital currencies, or CBDCs.

In a Sept. 28 announcement, the BIS said the collaboration — named Project Icebreaker — will involve the bank’s Innovation Hub Nordic Centre testing key functions and the technological feasibility of interlinking domestic CBDC systems. The central banks will develop a new hub in which the Central Bank of Norway, the Bank of Israel, and Sveriges Riksbank can connect their proof-of-concept CBDC systems.

Beju Shah, the head of the Innovation Hub Nordic Centre, said the experiment will explore CBDC designs and architecture, as well as related policy concerns. The project aimed to improve cross-border payments using CBDCs by reducing costs and increasing speed and transparency, with a final report expected in the first quarter of 2023.

“Efficient and accessible cross-border payments are of extreme importance for a small and open economy like Israel and this was identified as one of the main motivations for a potential issuance of a digital shekel,” said Bank of Israel deputy governor Andrew Abir. “The results of the project will be very important in guiding our future work on the digital shekel.”

The #BISInnovationHub Nordic Centre, @riksbanken @NorgesBank and Bank of Israel are launching Project Icebreaker to explore how #CBDCs can be used for international retail and remittance payments using a hub-and-spoke model. Read more: https://t.co/1aRTCtJprM pic.twitter.com/CR1tCdAh1j
— Bank for International Settlements (@BIS_org) September 28, 2022

The BIS reported on Sept. 27 that a CBDC pilot involving the central banks of Hong Kong, Thailand, China and the United Arab Emirates was “successful” after a month-long test facilitating $22 million worth of cross-border transactions. Other countries’ central banks have launched similar initiatives related to improving cross-border settlements, as institutions in Australia, Singapore, Malaysia and South Africa announced in September 2021.

The Central Bank of Norway, the Bank of Israel and Sveriges Riksbank have all been considering the benefits of rolling out their respective CBDCs, while China reportedly expanded the trials of its digital yuan to larger swaths of the country in September. In the United States, lawmakers and regulators have taken different approaches to explore the digital dollar, while a March executive order from President Joe Biden had government departments and agencies research the benefits and risks of a CBDC.

BIS

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