Banking and CBDC Weekly Roundup: 21/10/2024

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' weekly has you covered.

CBDC Updates

Deutsche Bundesbank President Dr Joachim Nagel says CBDCs must be interoperable for the full benefits on cross-border payments to be felt.

Speaking at a Reserve Bank of India event in New Delhi — entitled Central Banking at Crossroads — he said "inefficiencies" and "undesirable interferences" will emerge if central banks pursue digital currencies in an unfragmented way.

Illustrating how this will be a challenging task, he noted how "there is still no single pan-European solution for digital payments," despite the euro launching more than 25 years ago. But noting that there needs to be safeguards against overreach from the ECB, Nagel added:

"A digital euro would be a major step forward in this context. It would provide a standardised digital means of payment for day-to-day transactions throughout the euro area. Despite the need for a more integrated payment system, we are determined to prevent the Eurosystem's footprint in the European financial system from becoming too large."

He went on to hint that the digital euro could one day be made available to consumers outside of this trading bloc — including those in the wider European Economic Area, and perhaps some non-EU countries.

Nagel admitted that CBDCs remain a relatively new and untested concept, and delved into the history books to show how resistance to up-and-coming technology is a common theme.

"The scepticism about CBDCs in many quarters is not uncommon for many technological innovations. For example, in the early 1980s, 'computerphobia' was a widespread phenomenon. This took a wide range of forms, even fear of physically touching a computer or feeling threatened by those who worked with them. Today, this may seem very strange to us. Computers have since become an essential day-to-day tool for us."

Meanwhile, a new paper argues that Russia may face an uphill struggle as it attempts to achieve global adoption of the digital ruble, and undercut the dominance of the dollar.

The Carnegie Russia Eurasia Center notes that the country lags behind China in the rollout of a CBDC, and other BRICS nations may be reluctant to embrace the digital ruble in fear of attracting secondary sanctions from the West.

It went on to argue that the digital ruble's "main appeal appears to lie in potentially mitigating the risks posed by international sanctions" — meaning policymakers in the US and beyond will be watching its rollout closely. All eyes are on the BRICS summit in Kazan this week.

Elsewhere, the Central Bank of the United Arab Emirates has given preliminary approval for a stablecoin pegged to the value of the dirham.

It's hoped this new digital asset would deliver "secure, stable and fully regulated transactions," along with "financial freedom" for end users.

Swifts's Sibos conference was launched today in Beijing, marking the growing importance of the region and China, in particular, for the international financial system. Read our full Sibos conference observation notes.

Tokenization Updates

This week the trendy term "tokenization" was used by Mastercard in another context. The payment technology leader has collaborated with an African bank to launch "tokenized-passive payment wearables," which use NFC technology to ensure glasses, rings, wristbands, phone cases and watch straps can be used to complete transactions.

The big difference here lies in how the sensitive data carried by contactless cards is replaced by a unique, encrypted token that prevents personal information from getting into the wrong hands. Mark Elliott, Mastercard's division president for Africa, explained:

"Tokenization is at the heart of the next generation of secure, contactless payments. By replacing sensitive data with encrypted tokens, we are ensuring that consumers can pay with confidence."

Those involved in the project argue there are benefits for merchants too, as this will open the door to a faster checkout experience.

Finally this week, some good news for high-end drinkers. More than 17,000 cases of investment-grade fine wines are being tokenized — meaning they can be bought, sold and traded far more easily than before. They can then be redeemed on demand at the investor's convenience.

BlockCellar co-founder Marcus Franjlin believes this can give current investors far greater levels of choice than before, adding:

"Our blockchain-enabled approach addresses many of the logistical challenges and frictions in the wine and spirits market, making investment and collection more accessible and secure for enthusiasts worldwide."