BIS advises central banks to plan in advance for CBDC security

November 29, 2023 Coin Telegraph

BIS

From legal issues to hackers, launching a CBDC is fraught with risks, and BIS has a big list of them to consider.

Issuance of a central bank digital currency (CBDC) requires adequate attention to security, the Bank for International Settlements (BIS) reminded central bankers in a report on Nov. 29. An integrated risk-management framework should be in place starting at the research stage, and security should be designed into a CBDC, the report said.

Risks associated with CBDCs will vary across countries, as conditions and goals vary, and they will change across time, requiring continual management. These risks can be broken down into categories and a wide array of individual factors, the study demonstrated. The risks grow with the scale and complexity of the CBDC. In addition:

“A key risk are [sic] the potential gaps in central banks' internal capabilities and skills. While many of the CBDC-related activities could in principle be outsourced, doing so requires adequate capacity to select and supervise vendors. […] A number of operating risks for CBDC stem from human error, inadequate definitions or incomplete planning.”

Cybersecurity may be challenged by other countries, hackers, users, vendors or insiders. The study identified 37 potential “cyber security threat events” from eight specific risks. Distributed ledger technology may be unfamiliar to a central bank and so not undergo full vetting or cause overdependence on third parties.

The study suggests an integrated risk management framework to mitigate CBDC risks.

*Proposed CBDC resilience framework. Source: BIS*

Despite the limited use of CBDCs in real life so far, several examples of risk management failure can be found. China found it was unprepared for the data storage requirements after it launched its digital yuan pilot. The Eastern Caribbean Central Bank’s DCash, a live CBDC, suffered a two-month outage in early 2022 due to an expired certificate in the software.

The head of the Bank for International Settlements (@BIS_org) has highlighted the need for vigilance and preparedness for the “constantly evolving” security challenges facing central bank digital currencies (#CBDCs) in a keynote speech https://t.co/zo7UlQUOxg #CBDC #cybersecurity
— Global Government Fintech (@GlobeGovFintech) November 13, 2023

On the other hand, the DCash pilot project had been considerably expanded the previous year to provide support in Saint Vincent and the Grenadines after a volcanic eruption there, improving the currency’s resilience, the study reminded.

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BIS Innovation Hub presents its ‘private CBDC’ project

November 29, 2023 Coin Telegraph

Anonymity

The Bank for International Settlement’s Project Tourbillon features two eCash prototypes, the first providing “unconditional payer anonymity” and the second being “more resilient” in security terms.

The Bank for International Settlements (BIS) Innovation Hub has presented the final report on its private central bank digital currency (CBDC) initiative, Project Tourbillon. The prototypes built in the project’s framework could allow payment anonymity for CBDC transactions.

The 46-page report, published on Nov. 29, explores the concepts of privacy, security and scalability on the material of two prototypes based on the designs of one of the pioneers of cryptography, David Chaum. The prototypes were called eCash 1.0 and eCash 2.0. While the former provides “unconditional payer anonymity,” the latter has “more resilient” security features.

According to the report authors, “it is feasible to implement a CBDC that provides payer anonymity while combating illicit transactions.” Project Tourbillon achieves that with the complete anonymity of the consumer during the transaction with the merchant, the report says:

“A consumer paying a merchant with CBDCs is anonymous to all parties, including the merchant, banks and the central bank.”

The merchant’s identity in this scheme is known to the payer and is only disclosed to the merchant’s bank as part of the payment. The central bank doesn’t see any personal payment data but can monitor CBDC circulation at an aggregate level.

However, in the first stage, all users must undergo a Know Your Customer procedure at a commercial bank to use the CBDC. As in the current financial system, the merchant’s bank remains responsible for ensuring that transactions comply with regulatory requirements such as Anti-Money Laundering, Countering the Financing of Terrorism and tax evasion laws.

The report concludes that Tourbillon’s payment process is easy to integrate into today’s payment landscape as it uses existing technologies such as QR codes, proof-of-stake protocols and account relationships between customers, merchants, banks and central banks.

The BIS spearheads global CBDC adoption, assisting the Swiss National Bank in wholesale CBDC development and collaborating on joint platforms with central banks in China, Hong Kong, Thailand and the United Arab Emirates, among others. It is also working on a transaction tracker proof-of-concept with the European Central Bank.

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More foreign banks join China’s CBDC pilot trials

November 28, 2023 Coin Telegraph

CBDC

A total of four foreign banks have integrated China’s e-CNY CBDC thus far.

More foreign banks have joined China’s digital yuan central bank digital currency (CBDC), the e-CNY, following British bank Standard Chartered’s entry on Nov. 27, bringing its total to four.

According to local news reports, Hong Kong-based HSBC, Hang Seng Bank and Taiwanese bank Fubon Bank have also added e-CNY integrations to their platforms. All four foreign banks will allow their clients to transfer and withdraw e-CNY. Moreover, Hang Seng Bank has allowed personal banking customers to bind debit cards within the official e-CNY app and redeem digital renminbi. They can also top up the digital renminbi wallet through the Hang Seng China Mobile Banking App. HSBC has also added similar features for retail e-CNY use for its clients.

As for Fubon Bank, it has allowed users to recharge e-CNY via mobile banking and spend the CBDC using its bank card. The firm said it would continue to explore e-CNY CBDC applications in cross-border trade, smart contracts, cross-border payments and supply chain finance.

Song Yuesheng, vice chairman and president of Hang Seng China, said that the bank plans to use the ongoing e-CNY CBDC pilot to “create new consumption scenarios, enrich service systems, stimulate new consumption vitality, and provide business opportunities.” The day before, Standard Chartered stated that it is currently experimenting with the e-CNY CBDC in fields such as “cross-border merchant payments, trade financing, and supply chain financing.”

Last month, Cointelegraph reported that the Chinese digital yuan CBDC was used for the first time to settle a cross-border oil deal where PetroChina International purchased 1 million barrels of oil using the CBDC. In the first three quarters of 2023, the use of the yuan in cross-border settlements was up 35% year-on-year, reaching $1.39 trillion, China Daily reported.

Standard Chartered joins China’s CBDC pilot testing

November 27, 2023 Coin Telegraph

CBDC

The British bank will provide e-CNY CBDC services to clients and explore its future use in China's financial system.

British multinational bank Standard Chartered will partake in trials of China's digital yuan central bank digital currency (e-CNY CBDC), one of the first foreign banks to do so in the country.

According to the Nov. 27 announcement, Standard Chartered, through its partner City Bank Clearing Services Co., will allow its clients to purchase, exchange, and redeem e-CNY within its bank accounts. "As an international bank rooted in the Chinese market for 165 years, Standard Chartered is optimistic about the development prospects of digital Renminbi," said Xiaolei Zhang, president of Standard Chartered China.

The bank will also join China's e-CNY CBDC pilot testing program, which is currently ongoing within 26 cities and provinces. Standard Chartered stated that its areas of exploration include cross-border merchant payments, trade financing and supply chain financing.

Last year, Standard Chartered participated in the "Multilateral Central Bank Digital Currency Bridge" proof-of-concept test project in Hong Kong for providing cross-border payment settlement services for retail and enterprise clients. In May 2023, Standard Chartered and PricewaterhouseCoopers China jointly released the report "Central Bank Digital Currency to Create a Future Banking Ecosystem," discussing the application prospects of CBDCs in the fields of retail, trade and supply chain finance.

On Nov. 25, China's central bank published a white paper titled "A cross-border e-commerce business-to-business digital renminbi application solution." The document called for commercial payment processors to integrate the e-CNY CBDC for consumer transactions. Since its inception in 2020, e-CNY transactions have surpassed 1.8 trillion Yuan ($253.6 billion), while the number of wallets has surged to 120 million.

South Korea to invite 100K citizens to test CBDC in 2024

November 23, 2023 Coin Telegraph

BIS

Participants will be restricted to using the CBDC only for payment, without an option to store, exchange or send it to other users.

The Bank of Korea (BOK) — South Korea’s central bank — has said it will invite 100,000 Korean citizens to purchase goods with deposit tokens as part of its central bank digital currency (CBDC) pilot. The testing will start “around September to October” of 2024 and last for three months.

According to a Korea Times report from Nov. 23, participants will be restricted to using the CBDC only for payment, without an option to store, exchange or send it to other users. The goal of the pilot stage is to evaluate the feasibility and effectiveness of issuing and distributing the currency.

The BOK will also collaborate with the Korea Exchange to integrate its new digital currency into a simulation system for carbon emissions trading to test the feasibility of delivery versus payment transactions. The BOK statement cited by the newspaper said:

“[...] The pilot project will be conducted first in the fourth quarter of 2024. The possibility of conducting separate pilots will be considered as well if banks propose new individual projects.”

The statements from the BOK coincided with a visit to the country’s capital, Seoul, by Agustin Carstens, general manager of the Bank for International Settlements (BIS). Carstens has publicly referred to the Korean CBDC project as the digital won.

The Bank of Korea announced the launch of the CBDC pilot in October. The pilot, testing retail and wholesale CBDCs, will include private banks and public institutions, while the BIS will provide expert technical support.

The BIS is at the forefront of global CBDC adoption. It is helping the Swiss National Bank to develop a wholesale CBDC, as well as assisting in building a joint platform with the central monetary authorities of China, Hong Kong, Thailand and the United Arab Emirates. It’s also developing a proof-of-concept for a transactions tracker with the European Central Bank, among numerous other projects.

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The Role of Blockchain in the Evolution of CBDCs (Central Bank Digital Currencies) for Trading

November 23, 2023 The Daily Hodl

Cambodian digital currency bakong amps up use case with Alipay agreement

November 20, 2023 Coin Telegraph

Alipay

The CBDC-like bakong provides digital payment services in riel and the U.S. dollar. It has been steadily extending its regional scope.

The bakong, a digital currency operated by the National Bank of Cambodia (NBC), will provide users with access to the Alipay merchant network and enable cross-border transactions on Alipay+ using QR codes under a memorandum of understanding (MoU) signed at the FinTech Expo in Singapore, the local press reported.

The bakong service operates by the NBC on a blockchain, but it is not a central bank digital currency (CBDC), as the currency is a liability of the commercial banks that use it. The bakong enables both United States dollar and Cambodian riel accounts. The Cambodian economy is heavily dollarized.

The MoU means that Cambodians will be able to use riel from their bakong wallets to shop with 83 million merchants worldwide on the Alipay network. In addition, Chinese tourists who have accounts with China’s massive Alipay electronic payment system will be able to shop in Cambodia using the QR codes of the bakong KHQR system. NBC governor Chea Serey said:

“The simplicity of making payments provides merchants with a revenue boost, helping to stimulate economic activity. I’m confident this collaboration with Alipay+ will be beneficial for all parties.”

There were 35.4 million transactions worth $12 billion using the bakong in the first half of 2023, the Phnom Penh Post reported on Nov. 17.

The bakong payment was launched in 2020 and was designed for sending remittances an making purchases. Its mobile app was developed in collaboration with Japan’s Soramitsu blockchain. In August, Soramitsu announced plans to use the bakong to develop a cross-border payment system encompassing India, China and Japan. The bakong is already used in Malaysia, Thailand and Vietnam.

Local vendors can now use the KHQR network of the Bakong system, a part of the National Bank of Cambodia (NBC), to make payments to over 80 million Alipay merchants globally.https://t.co/hLagrXU08X
— The Phnom Penh Post (@phnompenhpost) November 17, 2023

In July, the NBC signed a MoU with China’s UnionPay International on the use of QR codes for cross-border payments.

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Ripple’s James Wallis underscores CBDCs’ role in breaking financial barriers

November 19, 2023 Coin Telegraph

CBDC

Wallis clarifies that financial inclusion aims to extend financial services to individuals worldwide, especially those with low incomes and no ties to financial institutions.

James Wallis, Ripple’s vice president for central bank engagements and central bank digital currencies (CBDCs), has highlighted the role of CBDCs in advancing global financial inclusion in a brief video. Wallis clarifies that financial inclusion aims to extend financial services to individuals worldwide, especially those with low incomes and no ties to financial institutions.

Wallis pinpointed key factors behind financial exclusion, including low incomes and a lack of existing ties with financial institutions, leading to the absence of a credit history. In regions with financial exclusion, banks are often commercial entities driven by shareholder interests, posing challenges in serving individuals with limited resources, as generating profits from such a demographic is difficult.

Wallis contended that CBDCs provide a cost-effective solution by enabling financial services at a significantly lower cost than traditional methods. CBDCs offer streamlined payment options and chances to establish credit, even without previous ties to financial institutions.

This, in effect, enables individuals to build credit histories, acquire borrowing capabilities, and stimulate the growth of their businesses. Wallis concluded that CBDCs represent a transformative innovation addressing global challenges in financial inclusion.

Ripple is working in partnership with more than 20 central banks globally on CBDC initiatives and has taken on the role of the technology partner for the second phase of the CBDC project in the Republic of Georgia. Additionally, Ripple is actively engaged in CBDC collaborations in Bhutan, Palau, Montenegro, Colombia, and Hong Kong.

Ripple is currently engaged in a legal battle against the SEC. In July, Ripple received recognition from Currency Research for its contributions to digital currency advancement and best sustainability initiative, particularly for fostering innovation in CBDCs. Before the partnership with the NBG for the digital lari project, Ripple had proactively aligned itself with organizations seeking to delve into CBDC implementations.

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German parliament member ’staunch opponent’ of digital euro, all in on Bitcoin

November 16, 2023 Coin Telegraph

Bitcoin Community

European Union lawmakers anticipate the arrival of the digital euro, but German politician Joana Cotar is pushing back against the currency and fighting in favor of Bitcoin.

The European Union has been actively preparing for what it envisions as the future of money. In the past year, it finalized its landmark comprehensive crypto legislation, the Markets in Crypto-Assets Regulation (MiCA), which is due to take effect in 2024 after closing its second consultation in October.

It has also made progress in its plan to introduce a central bank digital currency (CBDC), which is coming to fruition as the “digital euro.” De Nederlandsche Bank, the central bank of the Netherlands, has described it simply as an “electronic form of public money - the coins and notes in our wallets.”

Many local regulators are embracing the digital euro and touting its potential benefits, though not everyone is on board. In a recent survey out of Spain, 65% of Spaniards said they were not interested in using the digital euro.

Slovakia’s parliament even passed a measure in June that amended its constitution to codify a citizen’s right to pay for goods and services with cash in the face of the impending digital currency.

In Germany, one local politician is not only against the digital euro but is offering another digital solution for a financial revolution: Bitcoin (BTC).

Cointelegraph spoke with Joana Cotar, a member of the Bundestag — the German federal parliament — and a Bitcoin activist, about her take on the digital euro and why she believes in the benefits of Bitcoin.

Cotar has been outspoken on her stance on the EU’s digital monetary solution, which she told Cointelegraph is that of “a staunch opponent of the digital euro.”

"Nobody needs the digital euro,” says Member of Germany’s Parliament while wearing a #Bitcoin T-shirt. pic.twitter.com/Rw4qdeKE0h
— Bitcoin Archive (@BTC_Archive) November 11, 2023

She said a digital euro could allow central banks to set an “upper limit” for payments and ownership, making citizens “helplessly at [their] mercy.”

The digital Euro would also mean that each and every one of us could be totally monitored. As a convinced libertarian, I emphatically reject this. Anyone who is against surveillance and for freedom does not need a digital Euro!

According to Cotar, the Chinese social credit system should serve as a warning of the possibilities of the absence of cash and state-controlled payment systems. “I don’t want the authorities to be able to spy on our private life and misuse this data,” she said.

However, in April the program director for the digital euro at the European Central Bank, Evelien Witlox, said that the “ECB has no interest in users’ personal data.” In October, the EU’s data protection regulators issued a joint statement regarding anonymity in digital euro transactions.

Cotar is using her platform, among other things, to raise awareness among lawmakers of the potential dangers she believes to be associated with the digital euro.

While Cotar may not be on board for a digital euro, she is a champion of Bitcoin. She is behind the “Bitcoin in the Bundestag" initiative, which she told Cointelegraph is committed to raising awareness and educating members of the German Bundestag (MPs) about the potential and risks of Bitcoin.

“Establishing a formal Bundestag committee that recognizes the technological differences between Bitcoin and other crypto assets and mainly deals with the importance of Bitcoin for our society is very important for us.”

She said her initiative serves as an information resource for members of the Bundestag and helps them make more informed decisions about Bitcoin specifically.

When she explained her greater vision for bringing Bitcoin into regulators’ consideration, one major change she’d like to see is the allowance to pay taxes and fees paid in Bitcoin and using Bitcoin mining farms to stabilize the power grid.

“We need to promote the freedom aspects of Bitcoin (permissionless access, individual sovereignty) - this includes protecting privacy, ensuring security standards and preventing excessive regulation to maximize the benefits of Bitcoin.

Cotar would also like to initiate a “preliminary examination” for a legal framework that would recognize Bitcoin as a legal tender in Germany. “This includes ensuring the legal security for companies and citizens,” she said.

Wenn einem eine 72 Jahre alte Dame schreibt, dass sie #Bitcoin für ihre Enkel spart. Wie großartig kann man bitte sein? Mit über 70 mehr Durchblick als so manch Jungspund.
— Joana Cotar (@JoanaCotar) November 13, 2023

“We need to combat potential risks such as money laundering, tax evasion and other illegal activities associated with Bitcoin,” she said. "But without stifling innovation and the freedom aspects of Bitcoin.”

The Bitcoin-savvy lawmaker said her ideas for Germany could “easily be transferred” as a framework for other countries. She urges international cooperation to develop a blanket standard for Bitcoin and its cross-border use.

When asked if she feels similarly impassioned for other cryptocurrencies currently available on the market, her response was simply:

“My initiative is Bitcoin only.”

On Oct. 18 he European Central Bank (ECB) has announced it will begin the ”preparation phase” for the digital euro project following a two-year investigation into the potential EU-wide digital currency.

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Kazakhstan officially launches digital tenge

November 15, 2023 Coin Telegraph

CBDC

The chairman of the National Payment Corporation has made the first transaction with the central bank digital currency.

The chairman of Kazakhstan’s National Payment Corporation (NPC), Binur Zhalenov, has made the first transaction with the country’s new central bank digital currency (CBDC), the digital tenge. During his speech at the XI Congress of Finance in Almaty on Nov. 15, he paid with a debit card tied to the CBDC account, according to local outlet, Kapital.kz.

Zhalenov unveiled the official launch of the digital tenge on Kazakhstan’s retail market today, promising the “massive platform’s development” in 2024. According to the official, Kazakhstan collaborated with Visa and Mastercard, as well as the local banks, to integrate the CBDC into plastic cards:

“It lets you pay with a digital tenge from anywhere in the world, using Apple Pay, Samsung Pay and other gadgets.”

Zhalenov has also highlighted the “programmable” potential of the digital tenge, which could be used in smart contracts, innovative financial services, and digital asset transactions. Next year, he said, the CBDC development will focus on offline payments, and by 2025, the NPC expects to adopt the digital tenge in cross-border trade.

Development of the digital tenge started in February 2023, with an initial launch deadline set for 2025. The NPC itself was established only in September to lead the development and implementation of the CBDC.

In parallel with the swift CBDC rollout, Kazakh authorities have tightened their scrutiny over the crypto market. In September, local media noticed problems accessing Coinbase, Kraken and other major international crypto exchanges without a local license. In October, local crypto mining operators signed an open letter to the president of the Republic, Kassym-Jomart Tokayev, asking to cut the newly introduced tax rates on their activities.

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CBDC

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