Banking and CBDC Weekly Roundup: 03/11/2024
Project mBridge suffers a huge blow as BIS exits the stage — as EU states express disquiet over the digital euro, and the U.S. Treasury eyes CBDCs replacing stablecoins.
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' weekly has you covered.
CBDC Updates
BIS Backs Out of mBridge
We begin with significant news from the Bank for International Settlements, which announced this week that it will no longer be a part of Project mBridge.
BIS had been involved in launching the initiative three years ago, but concerns have been growing that the cross-border platform could allow the likes of Russia to sidestep international sanctions.
But the organization's general manager, Agustin Carstens, attempted to put a positive spin on BIS backing out — arguing that other partners in the project, including central banks, can continue development on their own.
He did go on to strike a cautionary note while addressing a banking conference in Madrid, adding:
"At the same time I have to say that mBridge is not mature enough to start operating. So many, many years need to happen."
Earlier in the week, Bloomberg had suggested that BIS was thinking of shuttering Project mBridge altogether.
Discontent on the Continent
There's friction elsewhere in the CBDC landscape too — especially in Europe.
According to Politico, several member states are growing unhappy about how much influence the European Central Bank has over the digital euro.
It's claimed the likes of France and Germany are unhappy that the ECB plans to dictate the maximum balance consumers can hold in their wallets.
And in what's shaping up to be a lose-lose situation, there are naysayers on both sides. Too high a cap fuels fears of bank runs at traditional institutions in times of crisis, but critics say excessively low limits could impinge on personal freedoms.
Cynics also fear there could be a big divide between the vision of a CBDC conceived in Brussels and how it's greeted by everyday consumers.
CBDCs to Replace Stablecoins?
The U.S. Treasury released a report that won't go down well among CBDC skeptics.
It's arguing that central bank digital currencies will one day have to replace stablecoins "as the primary form of digital currency underpinning tokenized transactions."
Parallels are drawn with the late 1800s, when a slew of privately issued "wildcat" currencies were replaced by government-backed alternatives.
Officials appear especially concerned about the large number of T-bills held by issuers, including Tether, and whether there could be a "fire sale" of holdings if one of these businesses went under.
Bullish Forecast for Adoption
Meanwhile, Juniper Research is predicting that transaction volumes involving CBDCs will hit $7.8 billion by 2031.
What's more, the rise of digital currencies and stablecoins could help consumers save $45 billion on fees over the next seven years.
Lorien Carter, who authored the report, explained:
“Emerging payment technologies, like CBDCs and stablecoins, will streamline international payments. These innovative technologies will help grow the digital economy and increase global financial inclusion by reducing the reliance on the US dollar for international settlements.”
Tokenization Updates
'Cautious Approach' Needed?
Returning to that Treasury report we mentioned earlier, and officials also gave their two cents about tokenization.
Resisting those who argue that decentralization represents the future of finance, the authors wrote:
"The way forward should involve a cautious approach spearheaded by a trusted central authority, with widespread buy-in from private sector participants."
Another Day, Another Fund
Two Abu Dhabi firms have become the latest to offer tokenized U.S. Treasuries.
Realize and Neovision Wealth Management are tokenizing shares in ETFs offered by the likes of BlackRock and State Street, resulting in digital tokens that can be traded through decentralized ledgers.
Based on Ethereum and IOTA, these tokens have been given the $RBILL ticker, and it's hoped that the fund will one day exceed a cap of $200 million.
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