Banking and CBDC Weekend Roundup: 29/06/2024

For all the key details of new Distributed Ledger Technology (DLT) projects in the banking world, real-world asset (RWA) tokenization, stablecoins, and central bank digital currency (CBDC) updates, the Observers 'Banking and CBDC Roundup' has you covered.

CBDC Updates

It's been a busy week — and we kick off with the European Central Bank, which has published its first report on how the digital euro is progressing.

The ECB's "preparation phase" for a CBDC formally began last November. Since then, it's been focusing on "high privacy standards" that would make digital payments "as close as possible" to cash transactions.

This will be key for winning round consumers, and addressing conspiratorial critics who claim a digital euro would be used as a surveillance tool.

According to the ECB, transaction details in offline payments would only be known to the two parties involved—and there's agreement on the technical features needed to ensure online CBDC transactions have "even higher privacy standards than current digital payment solutions."

"The Eurosystem would use state-of-the-art measures, including pseudonymization, hashing and data encryption, to ensure it would not be able to directly link digital euro transactions to specific users."

Work continues on an offline functionality so this CBDC can be used without an internet connection. It'll be possible to transact with smartphones, and "battery-powered smart cards" are being investigated too.

There's still no firm answer when it comes to the maximum amount of digital euro a consumer will be able to hold—with "a comprehensive monetary and economic assessment" taking place.

Elsewhere, the Banque de France and the Hong Kong Monetary Authority are going to examine interoperability between their wholesale CBDC infrastructure, with a view to achieving cross-border and cross-currency payments in real time.

The Banque de France has published the results of 2022 Project Venus on digital bond settlement using a wholesale CBDC. The experiment run with the European Investment Bank, Goldman Sachs, Société Générale, and Santander demonstrated the feasibility of using the tokenized central bank money for settlement of digital bonds on distributed ledgers. The time required for the process had decreased from 5 days to the same-day settlement.

Also positive on wholesale CBDC is the Swiss National Bank, which announced during a news conference an extension of its Project Helvetia for two more years. The pilot focuses on tokenized securities settlement in Swiss franc wholesale CBDC (and somewhat fixates on the number 6). The participants in the project are SIX Digital Exchange and six commercial banks: Banque Cantonale Vaudoise, Basler Kantonalbank, Commerzbank, Hypothekarbank Lenzburg, UBS, and Zürcher Kantonalbank. There have been six digital bond issuances settled with the total value of transactions of around CHF 750 million so far.

The Bank for International Settlements has released its latest survey on CBDCs—and found 94% of central banks polled are working on one in some form. But interestingly, countries are now more likely to roll out a wholesale CBDC in the next six years than one aimed at retail.

India is a powerful example of the challenges associated with promoting CBDC adoption among consumers. A Reuters report revealed that daily transactions have fallen to just 100,000—"a tenth of the peak hit in December." Even then, that demand was only reached because banks were incentivizing their customers.

Ahead of everyone else, China reported this week additional integrations for its e-CNY. In the Shijingshan district of Beijing, e-CNY was integrated with the vehicle insurance system to overcome the regulatory difficulties of using the digital renminbi for insurance premium payments.

Finally, the Bank of Korea has announced that 100,000 citizens will be given to take part in a CBDC pilot program in 2025, with the experiment specifically focused on payments.

Tokenization Updates

There's been no shortage of predictions for the size of the tokenization market by the end of this decade—$2 trillion here, $10 trillion there.

And now, Standard Chartered's thrown its hat into the ring with a forecast of where we'll be by 2034: $30.1 trillion. The bank's global head of trade, Kai Fehr, said:

"We see the next three years as a critical junction for tokenisation, with trade finance assets coming to the fore as a new asset class."

Fehr went on to stress that collaboration between investors, financial institutions, governments and regulators will be "critical" in realizing this.

Finally, Unstoppable Domains, which provides digital identities and Web3 domain names, has announced that it now allows .com domains to be tokenized too.