Patrick McConnell’s Post

Good paper in Journal of Financial Markets Infrastructure (JFMI) on 'functional consistency' for a CBDC - i.e. what a CBDC should look like (in a prefect world) and focuses on the Digital Pound https://lnkd.in/g9Nwy4xN Good discussion of various design options (4 in all) across 17 "common operational characteristics" with qualitative analysis of suitability of the options. It should come as no surprise (to those who think about these things) that the least suitable is the design provided by the central bank and the most suitable by a special piece of Financial Markets Infrastructure (FMI). The conclusion says a lot: "Our key contribution to the design space for the digital pound is the insight that no single design option could provide all the key capabilities needed for functional consistency across the digital pound and commercial bank money. Instead, a complete solution would need to combine the suitable design option(s) for delivering each key capability." And "This will, therefore, be a complex design exercise 😉 requiring further analysis and experimentation" The paper does mention some risks arising out of a CBDC, in particular the risk of "fragmentation" of the payment system, but does not discuss the impact of the greatest risks, which are the operational risks to the banks and PSPs in the existing payments system which must re-engineer their existing core systems to accommodate CBDCs. #CBDC #digitalpound

Payments Use Cases and Design Options for Interoperability and Funds Locking across Digital Pounds and Commercial Bank Money - Abstract :" Central banks are actively exploring retail central bank digital currencies (CBDCs), with the Bank of England currently in the design phase for a potential UK retail CBDC, the digital pound. In a previous paper, we defined and explored the important concept of functional consistency (which is the principle that different forms of money have the same operational characteristics) and evaluated design options to support functional consistency across digital pounds and commercial bank money, based on a set of key capabilities. In this paper, we continue to analyse the design options for supporting functional consistency and, in order to perform a detailed analysis, we focus on three key capabilities: communication between digital pound ecosystem participants, funds locking, and interoperability across digital pounds and commercial bank money. We explore these key capabilities via three payments use cases: person-to-person push payment, merchant-initiated request to pay, and lock funds and pay on physical delivery. We then present and evaluate the suitability of design options to provide the specific capabilities for each use case and draw initial insights. We conclude that a financial market infrastructure (FMI) providing specific capabilities could simplify the experience of ecosystem participants, simplify the operating platforms for both the Bank of England and digital pound Payment Interface Providers (PIPs), and facilitate the creation of innovative services. We also identify potential next steps." https://lnkd.in/eZevD5PE Lee Braine, Shreepad Shukla, Piyush Agrawal, Shrirang Khedekar and Aishwarya Nair Chief Technology Office Barclays

🤔 As #CBDCs advance, integrating multiple CBDC systems will be crucial for the future of money and payments. Without instant settlement within one single currency system and giving ownership of money back to users, CBDC systems would be no different from regular fiat banking accounts and would lose their raison d'être. To adapt to this structural change, we believe that #CommercialBanks should implement a dual-account system: a conventional digital banking account system working in parallel with a CBDC system.   ✅ Read the full article to explore how the dual account system can enable the true potential of CBDCs: https://lnkd.in/eA8aHmmU   #CBDC #DigitalCurrency #Payments #FinancialInclusion #Innovation

#cbdc | #payments | #RealTimePayments | #UPI | #DLT : Central banks around the world are actively researching and investigating the benefits, challenges, and design options of wholesale and retail central bank digital currencies (CBDCs). Since CBDCs are one of the most critical components of a national payment system (NPS), it is important that their interoperability with other payment systems is one of the key considerations in the design process. The ITS Technology & Innovation (ITSI) team, in collaboration with the World Banks’s Finance Competitiveness and Innovation (FCI) Global Practice, has conducted technology design experiments on two specific scenarios regarding CBDC system interoperability with fast payment systems (FPS). In the first scenario, the experiment investigated the option of settling FPS obligations in a wholesale CBDC system, including the option to reserve funds to guarantee the settlement of FPS net obligations. In the second scenario, the team investigated the interoperability between users within the FPS and retail CBDC users, including the transfer of funds among both types of users, using common services such as address resolution services. This experiment illustrated how CBDC systems could interoperate with retail payment systems through an interlinking bridge that was used to route messages and application programming interface (API) calls among different systems. The programmability features of Distributed Ledge Technology (DLT) were used to link the settlement in CBDC to the transfer of funds in the FPS. The technical applicability for this type of interoperability was demonstrated through the experiments, with the caveat that these experiments do not take into account complexities that may be involved with live systems.  

In a world full of IA news, the Digital Euro seems to have disappeared, but nothing could be further from the truth. The ECB continues with its plans and its reflections on the implications for bank funding if, thanks to CBDCs, not so many intermediaries are needed, a possible solution suggested by the ECB: banks could always offer higher remuneration to retain deposits. Recommended reading for anyone interested in the future of money (link to the full article below) Abstract: Digital euro: Debunking banks’ fears about losing deposits Many banks worry their customers might withdraw deposits to hold digital euro instead. These fears are misplaced: a digital euro will be designed as a means of payment and not for investment, argue ECB Executive Board member Piero Cipollone, Ulrich Bindseil and Jürgen Schaaf. https://lnkd.in/dFaQw2nw

Hmnn! Now where have I heard all this before? https://lnkd.in/gp2dmpcs  #IMF Concluding Thoughts 1) The decision on whether to prioritize CBDC exploration will be dependent on jurisdiction-specific circumstances. [No #BIS silver bullet] 2)For certain objectives, there may be little difference between outcomes achieved by a CBDC system, FPS, or e-money [Much ado about little] 3) For other objectives, FPSs and e-money systems may fall short of what CBDC systems can be expected to achieve. [What is a #CBDC for?] 4) When crafting a CBDC strategy, central banks should assess the current performance and future potential of existing non-CBDC systems. [Let's look at what works BEFORE charging off!] 5) No single answer exists on whether central banks should encourage improvements to existing systems or pursue CBDC. [Depends on e.g. whether Instant Payments Systems already exist] 6)Practical capacity may constrain the ability of central banks to implement change today, even if they have a clear long-term vision [Do central banks have the ability to implement their blue-sky ideas?] 7) The changing payments landscape, toward a multi-instrument, multi-infrastructure world, requires central banks to be flexible and pragmatic in their approach to CBDC. [BIS could start by doing real rather than PowerPoint reserach?] "While not all central banks can pursue multiple initiatives at once, investing time in monitoring and engaging internationally on payment system innovation remains a minimum essential for resource-constrained central banks given the pace of developments. An assessment should be iterative and always keep one eye toward the future." In other words, BIS look up and see what is actually happening! #IMF performing a pirouette ? #CBDC #digitalEuro #ECB look at option D in Figure 3 😉

Banks around the world will next year start live trials of digital asset and currency transactions over the Swift network. While the Swift network has been used to carry out digital asset transactions in test environments, the move to live trials is being pitched as a major step towards large scale institutional adoption. Commercial and central banks across Asia, Europe and North America will soon start live pilots, which Swift says will demonstrate how they can transact interchangeably across both existing and emerging asset and currency types using their current Swift connection. The tests will involve an advanced version of Swift infrastructure that is capable of orchestrating digital asset and currency transactions across networks for the first time. Swift is taking on a key challenge in the continuously evolving digital asset market: the rise of disconnected digital platforms, or ‘digital islands’, that could hinder more widespread adoption and ease of use for new forms of value. Currently, 134 countries are exploring CBDCs, and the size of the tokenised assets market is forecast by Standard Chartered and Synpulse to rise as high as $30 trillion by 2034. However, Swift argues that without interconnectivity between platforms, global adoption is set to remain fragmented. The group thinks it can address this through its global network to interlink various digital and traditional currency platforms, providing a single system for banks to transact across borders. Tom Zschach, chief innovation officer, Swift, says: "For digital assets and currencies to succeed on a global scale, it’s critical that they can seamlessly coexist with traditional forms of money. "With our vast global reach, we are uniquely positioned to bridge both emerging and established forms of value, and we’re now focused on demonstrating this in real-world, mainstream applications." #FinastraPayments

Banks around the world will next year start live trials of digital asset and currency transactions over the Swift network. While the Swift network has been used to carry out digital asset transactions in test environments, the move to live trials is being pitched as a major step towards large scale institutional adoption. Commercial and central banks across Asia, Europe and North America will soon start live pilots, which Swift says will demonstrate how they can transact interchangeably across both existing and emerging asset and currency types using their current Swift connection. The tests will involve an advanced version of Swift infrastructure that is capable of orchestrating digital asset and currency transactions across networks for the first time. Swift is taking on a key challenge in the continuously evolving digital asset market: the rise of disconnected digital platforms, or ‘digital islands’, that could hinder more widespread adoption and ease of use for new forms of value. Currently, 134 countries are exploring CBDCs, and the size of the tokenised assets market is forecast by Standard Chartered and Synpulse to rise as high as $30 trillion by 2034. However, Swift argues that without interconnectivity between platforms, global adoption is set to remain fragmented. The group thinks it can address this through its global network to interlink various digital and traditional currency platforms, providing a single system for banks to transact across borders. Tom Zschach, chief innovation officer, Swift, says: "For digital assets and currencies to succeed on a global scale, it’s critical that they can seamlessly coexist with traditional forms of money. "With our vast global reach, we are uniquely positioned to bridge both emerging and established forms of value, and we’re now focused on demonstrating this in real-world, mainstream applications." #FinastraPayments

Banks around the world will next year start live trials of digital asset and currency transactions over the Swift network. While the Swift network has been used to carry out digital asset transactions in test environments, the move to live trials is being pitched as a major step towards large scale institutional adoption. Commercial and central banks across Asia, Europe and North America will soon start live pilots, which Swift says will demonstrate how they can transact interchangeably across both existing and emerging asset and currency types using their current Swift connection. The tests will involve an advanced version of Swift infrastructure that is capable of orchestrating digital asset and currency transactions across networks for the first time. Swift is taking on a key challenge in the continuously evolving digital asset market: the rise of disconnected digital platforms, or ‘digital islands’, that could hinder more widespread adoption and ease of use for new forms of value. Currently, 134 countries are exploring CBDCs, and the size of the tokenised assets market is forecast by Standard Chartered and Synpulse to rise as high as $30 trillion by 2034. However, Swift argues that without interconnectivity between platforms, global adoption is set to remain fragmented. The group thinks it can address this through its global network to interlink various digital and traditional currency platforms, providing a single system for banks to transact across borders. Tom Zschach, chief innovation officer, Swift, says: "For digital assets and currencies to succeed on a global scale, it’s critical that they can seamlessly coexist with traditional forms of money. "With our vast global reach, we are uniquely positioned to bridge both emerging and established forms of value, and we’re now focused on demonstrating this in real-world, mainstream applications." #FinastraPayments

Banks around the world will next year start live trials of digital asset and currency transactions over the Swift network. While the Swift network has been used to carry out digital asset transactions in test environments, the move to live trials is being pitched as a major step towards large scale institutional adoption. Commercial and central banks across Asia, Europe and North America will soon start live pilots, which Swift says will demonstrate how they can transact interchangeably across both existing and emerging asset and currency types using their current Swift connection. The tests will involve an advanced version of Swift infrastructure that is capable of orchestrating digital asset and currency transactions across networks for the first time. Swift is taking on a key challenge in the continuously evolving digital asset market: the rise of disconnected digital platforms, or ‘digital islands’, that could hinder more widespread adoption and ease of use for new forms of value. Currently, 134 countries are exploring CBDCs, and the size of the tokenised assets market is forecast by Standard Chartered and Synpulse to rise as high as $30 trillion by 2034. However, Swift argues that without interconnectivity between platforms, global adoption is set to remain fragmented. The group thinks it can address this through its global network to interlink various digital and traditional currency platforms, providing a single system for banks to transact across borders. Tom Zschach, chief innovation officer, Swift, says: "For digital assets and currencies to succeed on a global scale, it’s critical that they can seamlessly coexist with traditional forms of money. "With our vast global reach, we are uniquely positioned to bridge both emerging and established forms of value, and we’re now focused on demonstrating this in real-world, mainstream applications." #FinastraPayments