70% of Jamaica population to adopt CBDC in 5 years, prime minister says

January 17, 2022 Coin Telegraph

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The Caribbean country expects a nationwide CBDC rollout by the end of the first quarter of 2022.

Central bank digital currency (CBDC) evolved into a hot topic in Jamaica when the country’s central bank successfully completed the first pilot test in early January.

Following the tests, the country's prime minister, Andrew Holness, has spoken confidently about CBDC adoption in the country.

Holness has predicted the majority of the Jamaican population would be quick to adopt the digital currency, with over 70% using the CBDC within five years. The Jamaican prime minister highlighted reduced banking costs and inclusivity of CBDC in a Bloomberg interview, adding that digital currency would ensure greater government accountability thanks to easier public resources tracking.

While admitting the initial challenges of a nationwide CBDC launch, which is aimed for the first quarter of 2022, Holness added that the government has to “figure out how to give people access to digital devices and the internet in general.”

The Bank of Jamaica, the country’s central bank, has become a pioneer in CBDC efforts with one of the first completed nationwide pilot projects in the world. After partnering with the Irish cryptography firm eCurrency Mint in March 2021, the central bank has conducted an eight-month-long pilot.

As Cointelegraph reported, the bank has minted 230 million Jamaican dollars (JMD) ($1.5 million) worth of the CBDC for issuance to deposit-taking institutions and authorized payment service providers. BoJ then issued 1 million JMD ($6,500) in CBDC to the staff at BoJ’s banking department and another 5 million JMD ($32,000) to the National Commercial Bank, a major financial institution in the country.

BoJ aims to add two new wallet providers for its CBDC, followed by a nationwide rollout in the first quarter of this year. The central bank also plans to focus on interoperability by testing transactions between customers of different wallet providers.

China’s central bank proposes to monitor metaverse and NFTs

December 1, 2021 Coin Telegraph

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The metaverse and NFTs are in the crosshairs of the People’s Bank of China, which wants to track the with Anti-Money Laundering tools.

China’s crackdown on crypto is expanding into the metaverse and nonfungible tokens (NFTs), an executive at the People’s Bank of China (PBoC) recently implied.

Speaking at a national financial security summit, Gou Wenjun, the director of the Anti-Money Laundering (AML) unit at the PBoC, pointed to the risks associated with leaving the new trends of the crypto ecosystem like NFTs and metaverse unregulated. He claimed that, while people would use said virtual assets for privacy and wealth appreciation, they are also prone to be used for illicit purposes like money laundering and tax evasion.

The fast-paced innovation of the crypto world requires higher requirements in terms of risk supervision and governance, said the AML head, adding that the isolated nature of crypto, NFT and metaverse-based items from the real world can be used as a money-laundering tool.

Suggesting an objective look at the evolution of virtual assets and the development of underlying technologies, Gou proposed to “clarify the division of supervisory responsibilities, improve the transparency of virtual assets, and explore the use of supervisory sandboxes to study and judge the essence and nature of virtual assets.”

As the second step, Gou said China should strengthen the monitoring and analysis of virtual asset transactions. Banks and payment services that provide fiat-to-crypto gateways should authenticate senders and receivers with real names while improving the ability to identify suspicious transactions, he proposed.

The PBoC official suggested improving the application of new technologies and establishing a virtual asset transaction traceability and scene tracking system. Said system would apply artificial intelligence, machine learning and other technologies to label accounts that transact with probed addresses.

Lastly, Gou is open to improving cooperation between financial intelligence agencies worldwide to form an international joint force to fight crypto-related crimes. “The Anti-Money Laundering Center will continue to deepen information sharing and co-investigation cooperation with 60 overseas financial intelligence agencies,” he added.

EU central banks work on DLT-based asset settlement

November 5, 2021 Coin Telegraph

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Banca d’Italia and Deutsche Bundesbank shared experiences on distributed ledger technology-based settlements in a workshop.

European central banks ramp up their efforts to utilize distributed ledger technology (DLT), the foundation of blockchain, in central bank money settlements.

Banca d’Italia and Deutsche Bundesbank, central banks of Italy and Germany, respectively, joined forces to work on settlements in central bank money of DLT-based asset exchanges.

The official announcement stressed that the primary goal of the joint workshop was not to use DLT as a replacement for conventional systems. Instead, the initiative aims to complement the current central bank money settlement practices with a programmable trigger mechanism that connects the DLT-based asset, like a tokenized security, and cash to be settled via conventional payment systems.

The proposed system would minimize the counterparty risk for both sides by preserving the delivery-versus-payment mode of settlement, the announcement reads. The programmable trigger would complement the digital euro and serve as a technical bridge between existing payment systems used by Eurosystem central banks and the DLT-based settlement of tokenized assets.

DLT has the potential to usher in new products and services, generate additional revenue streams, reduce the cost of operations and make organizational structures more efficient, said Italian central bank governor Ignazio Visco. He underscored that an infrastructure-level DLT adoption in traditional markets would take time “because of the necessary in-depth investigations and cost and risk assessment.”

“If market participants want to reap the benefits of new technologies like DLT for the settlement of tokenized assets, central banks should support that by enabling the settlement of the responding cash leg in secure central bank money,” said Deutsche Bundesbank President Jens Weidmann. He added:

“The tested trigger solution could well serve the market’s need and keep central bank money in the systems run by central banks. In comparison to creating wholesale central bank digital currency, a trigger solution could be operational in a much shorter time frame.”

Deutsche Börse, Deutsche Bundesbank and Germany’s Finance Agency conducted a pilot test with the participation of Citibank, Barclays, Goldman Sachs, Commerzbank, DZ Bank and Société Générale, bridging traditional finance with distributed ledger technology in March 2021. The German Finance Agency issued a 10-year federal bond via the DLT trigger system and tested securities trading on primary and secondary markets as part of the pilot.

China’s central bank says crypto gave impetus to the creation of its CBDC

July 16, 2021 Coin Telegraph

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A working paper released in English by the People's Bank of China cites cryptocurrencies as an important context for the digital yuan's development and reveals that the digital currency will use smart contracts to allow for programmability.

Much attention has been paid to the global, geopolitical implications of China’s rapid and pioneering development of its digital yuan, also provisionally known as e-CNY.

Yet in a new white paper published by the Working Group on E-CNY Research and Development of the People’s Bank of China (PBoC), the institution gave a more domestic-focused and technologically-driven vision of the new currency’s background and key objectives.

Recapping the currency’s research and development timeline, the paper notes that the PBoC first set up a task force to study digital fiat currency back in 2014. By 2016, it had established a Digital Currency Institute, which developed the first-generation prototype for the new currency. With the State Council’s approval, the bank began to collaborate with commercial institutions on further developing and testing the e-CNY at the end of 2017.

Notably, these years coincided with the steep growth of the decentralized cryptocurrency markets and their first major bull run in winter 2017, alongside significant transformations of the domestic and international digital economy transformations.

Big data, cloud computing, artificial intelligence, blockchain and the Internet of Things are the key innovations singled out in the white paper and the bank notes that the Covid-19 pandemic has markedly sped up the digital transformation of Chinese enterprises and payment services.

The PBoC is drawing on many of these developments for the e-CNY, including using smart contracts to allow for programmability, as the new paper reveals for the first time.

Yet while the institution takes a positive view of technological change and far-reaching innovations to retail payment services, its characterization of decentralized cryptocurrencies is scathing:

“Cryptocurrencies such as Bitcoin are claimed to be decentralized and entirely anonymous. However, given their lack of intrinsic value, acute price fluctuations, low trading efficiencies and huge energy consumption, they can hardly serve as currencies used in daily economic activities. In addition, cryptocurrencies are mostly speculative instruments, and therefore pose potential risks to financial security and social stability.”

Moreover, the PBoC notes that concerns about price volatility have spurred some private actors to launch stablecoins, pegged to fiat currencies or other assets. Plans to launch a global stablecoin by commercial institutions, in the PBoC’s view, will “bring risks and challenges to the international monetary system, payment and clearing system, monetary policies, cross-border capital flow management, etc.”

In this context, Beijing’s preference for state-led innovation of retail payment infrastructure and the creation of a centralized, two-tier management model for the e-CNY is to be expected:

“The right to issue e-CNY belongs to the state. The PBOC lies at the center of the e-CNY operational system. It issues e-CNY to authorized operators which are commercial banks, and manages e-CNY through its whole life cycle. Meanwhile, it is the authorized operators and other commercial institutions that exchange and circulate e-CNY to the public.”

In its strictly technical design, the currency integrates both centralized and distributed architectures, however. This has been used to great effect in various trials, implemented in over 1.32 million scenarios to date and with transaction volume totaling 70.75 million at a total value of roughly RMB 34.5 billion ($5.34 billion).

The white paper also considers the intensifying interest by central banks worldwide in the development of central bank digital currencies (CBDCs), noting that the PBoC has been engaged in extensive consultations with international organizations like the BIS, IMF and World Bank. It takes a cautious stance towards the use of e-CNY for cross-order use, stressing “various complicated issues such as monetary sovereignty, foreign exchange policies [...] as well as regulatory and compliance requirements.”

Given that the e-CNY is already technically ready for cross-border use, the PBoC says it will nonetheless actively respond to initiatives from the G20 and other organizations and explore possible pilots for cross-border payments, “preconditioned on mutual respect to monetary sovereignty and compliance.”

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