Stuart M. Basefsky’s Post

🔥 MUST READ🔥 Geopolitical Fault Lines Dim Central Bank's Love of CBDC The OMFIF’s Future of Payments report shows a big difference in central bankers’ support for CBDCs this year with the realization that they will fragment the payment system along geopolitical fault lines. This year, only 13% of central bankers say CBDC is the best way to improve cross-border payments compared to 31% last year. That’s a bit of a shocker, and the primary reason is that bankers finally realized that there would be no “unified” global payment system for CBDCs.   I've been saying this for years! It finally hit that CBDCs would hasten the transition to a fragmented payment system between the US and BRICS nations, and central bankers didn’t like that one bit. 👉TAKEAWAYS ➣68% of central banks say transaction costs are a challenge for cross-border payments. ➣33% of central banks say that more than 10% of the institutions they supervise will miss the ISO 20022 deadline. ➣13% say connecting CBDCs is best for improving cross-border payments, down from 31% in 2023. ➣47% say interlinking IPS is the best way to improve cross-border payments. ➣44% say harmonising legal and regulatory frameworks is the biggest barrier to interlinking IPS. ➣85% of central banks give or plan to give non-bank payment services providers access to real-time gross settlement systems. ➣76% of central banks see wholesale CBDC and tokenised deposits operating in a tokenised ecosystem. ➣15% of central banks are working on tokenising cash, but 33% say they expect to be within three to five years. 👊STRAIGHT TALK👊 So what’s behind central bankers and their cadre’s change of heart? This year, the shift of support was toward “Instant Payment Systems” (IPSs), which had five successful trials in Southeast Asia.  There’s nothing wrong with IPS systems, and I quite like them as long as you realize they carry only small amounts of money across borders. And that is a problem! 👉The central banks’ support for IPSs is the equivalent of supporting the application of a band-aid to a cross-border payment system that is gushing arterial blood. 🩸 Central banks like IPS systems because, unlike CBDCs, they don’t upset the status quo and keep commercial banks undisturbed by CBDCs. Remember, commercial banks loathe CBDC! IPS systems are far less disruptive and do not require a “replumbing” of the financial system as CBDCs do.  This undoubtedly makes IPS easier for central banks, whose role becomes supervisor rather than builder, as with CBDCs. Central bankers can appear to be doing something by pursuing linked IPS systems, while nothing changes for most payments.  It’s the easy way out! ✍️Friends, what am I getting wrong? ♻️Reposters you are the best! Thanks so much for sharing! ---------------------- 🔺 #Fintech, #AI and #Tech at the speed of #Asia and #China. 🔺Onalytica No.4 Global Fintech Influencer with two best-sellers. Like this post? Want to see more? 🔝 Follow me.

Another central bank, Bank Negara Malaysia (BNM), talks itself down from the CBDC ledge (same as Australia and Canada) https://lnkd.in/gDnFc2be "In the area of retail payments, we have no immediate plans to issue retail CBDC given the highly efficient domestic retail payment systems operating today. Central banks in this region have however, deepened our cooperation significantly in recent years to enhance cross-border payment connections given the strong trade and economic ties between our countries." Move from domestic to Regional Instant Payments Systems (RIPS)? Why the change of heart in these central banks? [Hint - they have just discovered risk!] "Critically, it also reflects the need to anticipate and manage risks to the central bank’s mandates. The pace of change and potentially far-reaching impact of payment innovations requires central banks to carefully consider how such innovations affect the complex balance between resiliency, inclusivity, efficiency and policy efficacy. We need to remain vigilant to new pockets of risk even as we pursue measures that aim to encourage responsible innovation. For example, with many transactions becoming almost real-time, intraday liquidity management becomes more crucial for players. IT infrastructure and cyber security have shifted into sharp focus especially since the surface along the payment value chain for threat actors to exploit has expanded significantly." [And lets not forget fraud risk!] Gone are the days of just throwing up a PowerPoint presentation and declaring victory. When central bankers actually consider the enormous risks of implementing a half-cocked CBDC, they receive a very cold bucket of water in their faces. Retail CBDCs are not a game! Is Datuk Jessica Cheng Lian Chew the little central banker who called out - 'the BIS has no clothes'? #CBDC #BIS

IMF Positioning CBDC in Payments Landscape - Fintech notes - NOTE/2024/006 - Summary : " IMF is frequently approached by central banks seeking guidance on balance between CBDC, FPS, & e-money solutions. Common questions arising include: Do central banks need a CBDC when already equipped with other well-established digital payments systems? For central banks with less-developed solutions: Should central banks establish one system over the other? This discussion is then compounded by reality of constrained resources. A holistic exploration & decision process on issuance of retail CBDC requires a comprehensive assessment of legal, macro-financial, & operational considerations. This note focuses on comparison of rCBDC—that is, the presence of digital central bank money available to general public—with FPS & e-money systems from a payments perspective, & how CBDC may support a jurisdiction’s vision on payments in the digital age. The note does not seek to advocate for CBDC over FPS or e-money. The balance of arguments for any one system may change over time, & choice may not be mutually exclusive in many jurisdictions. In future, it is possible to envisage coexistence of FPS, e-money, & CBDC in many payment landscapes across the world. Through good design, all three systems could meet central bank objectives such as payments efficiency & support financial inclusion; some benefits are unique to CBDC, such as maintaining access to central bank money in an increasingly digitalized age. These considerations may be particularly relevant in the context of a retail payments landscape which may otherwise be moving towards 100 percent privately issued money. While multiple systems could meet same objectives, a jurisdiction’s evaluation will be dependent on distinct features & capacity of its current, & emerging, financial landscape. A landscape review is an important tool for central banks when assessing how policy objectives are being achieved today, & if necessary pre-conditions for new systems are in place, or could be established in future. Authorities’ capacity & capability to not only implement but supervise & regulate any system will be important. Any new system will have non-negligible costs, & different systems will potentially have different implications for distribution of costs between public & private sectors. Furthermore, a jurisdiction’s mandate && ability to apply their powers around payments may ultimately determine how well any system can fulfill its objectives. Given early stage of CBDC development, no singular strategy exists in the context of the questions put forward. While central banks will make choices unique to their circumstances, it remains important for central banks to establish a strategy that allows them at minimum to monitor trends and core benefits of multiple solutions as developments occur to allow them to plan, adapt, & drive developments in their payments landscape." IMF website link in comment

🔥 MUST READ🔥 Why Nations With Fast Payments Still Need A CBDC! The IMF shows why retail CBDC is more than another way to buy coffee as it answers the most asked question about CBDCs:  "Do central banks need a CBDC if they already have faster payment systems? (FPSs)" The IMF says yes while maintaining the balanced answer that there is no single answer for all nations: “FPSs and e-money systems may fall short of what CBDC systems can be expected to achieve. There are unique objectives where a CBDC provides benefits, such as access to central bank money and monetary sovereignty because of its nature first and foremost as public money.”  Backing up the IMF’s assessment are nations with excellent FPSs, like India, China, and Brazil that are technically sophisticated and see the benefit of building CBDCs. 👉TAKEAWAYS: Why CBDC? 🔹 Efficiency All three systems can enhance payments efficiency through speed. To the extent that CBDC is designed as “digital cash” and replicates more features of cash, it could be more effective in reducing the cost of cash management. 🔹 Competition ➣ The existence of multiple payment solutions is beneficial for competition and innovation. A CBDC system can increase competition by serving as a platform that lowers the barriers to entry for nonbank PSPs. ➣ By providing a public (market-neutral) infrastructure and scheme, market entry can become easier by lowering investment costs and ensure a level playing field for market participants. ➣ 🔥Private FPSs can in some cases limit competition as they might restrict market participation. Concerns of this type have underpinned recent decisions by the central banks in the euro area, Sweden, and the United States to have an active role in the operation of their FPS . 🔥 ➣ E-money can serve as a competitor and alternative to commercial bank deposits, but when operated only as closed loops, they can become monopolistic. In many jurisdictions, the e-money market is very concentrated, often resulting in limited competition. 🔹 Resilience While each system itself should have resilience measures, the resilience of the wider payment landscape can be improved from having alternatives. 🔹 Public Access to Central Bank Money FPSs and e-money networks cannot meet objectives around public access to central bank money. Access to central bank money provides individuals and businesses with an alternative to privately issued money. 🔹 Access to central bank money is closely linked to preserving monetary sovereignty—a nation’s ability to independently control its own currency and monetary policy. ✍️Still think FPS is enough and no CBDC is needed? ♻️Reposters you are the best! Thanks so much for sharing! ---------------------- 💥 My name is Rich; I write every word here, and strive for quality content, not JUNK! Comment? 🔺 #Fintech, #AI and #Tech at the speed of #Asia and #China. Like this post? 🔝 Follow me. 🚀 Click on “view my blog” 🔗 for more!

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 😉

Interesting observations from Ulrich Bindseil is Director General of Market Infrastructure and Payments at the European Central Bank and Richard Senner was working at the Directorate General, Macroprudential Policy and Financial Stability at the European Central Bank  Why macroeconomic predictions of CBDCs need questioning- The rise of digital payments has led to declining cash usage, raising concerns about competition, privacy, and state autonomy in payment systems. In response, central banks have explored issuing Central Bank Digital Currency (CBDC) to maintain the balance between public and private payment methods. Central banks have outlined CBDC design features such as no remuneration, holding limits, and restricted access, aiming to preserve the role of central bank money in a digital world. However, macroeconomic models on CBDC often fail to consider these design choices, potentially leading to incorrect conclusions about its effects. Some of the effects which could be ·     not issuing a CBDC could be worse than issuing one ·     CBDCs are expected not to pay interest thus, “it is difficult to specify a clear difference between CBDC and cash in macroeconomic models” ·     it is more likely that the combined decline of banknotes in circulation (relating to their lesser use) and the announced CBDC design features will lead to a declining volume of central bank money in circulation, ·     a combination of a decline in the use of physical cash and “the announced CBDC design features “will lead to a declining volume of central bank money in circulation” “If retail payments are exclusively left to the private sector and central bank money would be marginalised, then the amount of central bank money in circulation will significantly shrink, the length of central bank balance sheets would decline and the banks would benefit from deposit inflows, payment costs will increase (due to increasing market power of the successful firms), monetary and financial stability will be weakened” Should future research focus on the consequences of not issuing CBDC and better reflect real-world CBDC characteristics to understand its true macroeconomic impact? CBDC is seen as a tool to ensure economic stability and prevent the marginalization of central bank money as digitalization progresses. https://lnkd.in/eD5CAjYY Thank you OMFIF John Orchard

Unveiling the Pros and Cons of Central Bank Digital Currency (CBDC): A Comprehensive Analysis Introduction: Central Bank Digital Currency (CBDC) has emerged as a hot topic in the realm of monetary policy and digital finance. With several central banks worldwide considering or already piloting their own digital currencies, understanding the advantages and disadvantages is crucial. This article aims to provide a verified analysis of the original article on CBDC, evaluating its benefits and drawbacks. Original Article Overview: The original article comprehensively examines the implications of introducing CBDC into the financial ecosystem. It delves into various aspects such as monetary policy, financial inclusion, privacy concerns, and technological challenges associated with CBDC implementation. Moreover, it highlights the potential transformative impact of CBDC on traditional banking systems and the broader economy. Benefits of CBDC: Enhanced Financial Inclusion: CBDC can potentially improve access to financial services for unbanked and underbanked populations, facilitating digital payments and reducing reliance on cash. Efficiency and Cost Savings: The digitization of currency could streamline payment processes, reduce transaction costs, and enhance the efficiency of monetary policy transmission mechanisms. Reduced Counterfeit Risk: CBDC's digital nature offers increased security features, making it more resistant to counterfeiting compared to traditional paper currency. Monetary Policy Tools: Central banks can utilize CBDC to implement innovative monetary policy tools, such as direct stimulus payments or negative interest rates, with more precision and speed. Drawbacks of CBDC: Privacy Concerns: The implementation of CBDC raises significant privacy concerns, as it requires a high level of surveillance and monitoring by central authorities, potentially compromising individual financial privacy. Technological Risks: CBDC systems are susceptible to technological vulnerabilities, including cyber attacks, system failures, and data breaches, posing systemic risks to the financial infrastructure. Disintermediation of Banks: CBDC adoption may lead to the disintermediation of traditional banks, reducing their role in the financial intermediation process and potentially destabilizing the banking sector. Digital Divide: Despite efforts to enhance financial inclusion, the digital divide could exacerbate disparities, excluding marginalized communities with limited access to technology from participating in the digital economy.

Central Bank Digital Currency Assessing the Risks and Dispelling the Myths Central banks around the world are actively exploring central bank digitalcurrencies (CBDCs). In fact, several central banks have now launched their own CBDC. Yet these efforts have struggled to gain traction among citizens. While CBDC proponents present many potential benefits, those benefits do not stand up to scrutiny. In short, these proponents fail to meaningfully distinguish CBDCs from the digital dollars that exist today. Yet CBDCs are not just a story of government waste or cronyism. While CBDCs don’t offer any unique benefits to the American people, they do pose serious risks to financial privacy and economic freedom. From expanding financial surveillance to destabilizing the financial system, CBDCs could impose enormous costs on U.S. citizens. Put simply, there is no reason for the federal government to issue a CBDC when the costs are so high and the benefits are so low. Congress should ensure that the federal government does not issue a CBDC. What Is a CBDC? A CBDC is a digital national currency. In the case of the United States, a CBDC would be a digital form of the U.S. dollar. Like paper dollars, a CBDC would be a liability of the Federal Reserve. But unlike paper dollars, a CBDC would offer neither the privacy protections nor the finality that cash provides. In fact, it’s precisely this digital liability—a sort of digital tether between citizens and the central bank—that makes CBDCs different from the digital dollars millions of Americans already use. In the private sector today, Americans regularly use multiple forms of digital dollars. They send digital payments using credit cards, debit cards, prepaid cards, and several mobile applications (e.g., Zelle, PayPal, and Cash App). In fact, it’s not just payments that have gone digital. Nearly every financial institution offers services—from savings accounts to mortgages—via mobile applications. So there should be no misunderstanding: the U.S. dollar is already widely available in digital form. Moreover, the current system works so well that few people ever take the time to worry about whether the digital dollars they are using are a liability of Visa or a liability of Bank of America. In the case of a CBDC, however, the digital dollars would be a liability of the central bank itself. That is, the government—in the case of the United States, the Federal Reserve—has the direct responsibility to hold, transfer, or otherwise remit those funds to the ostensible owner. This feature creates a direct link between citizens and the central bank—a radical departure from the existing American system where private financial institutions provide banking services to retail consumers.

Bank of Canada - Ecosystem Models for a Central Bank Digital Currency: Analysis Framework and Potential Models Source: https://lnkd.in/gftMCF8h #canada #ecosystem #models #cbdc #digitalmoney #analysis #framework #potential #approaches Credits: Youming Liu Francisco Rivadeneyra Edona Reshidi Oleksandr Shcherbakov André Stenzel Highlights: This paper presents a framework for analyzing different economic models of a central bank digital currency (CBDC) ecosystem and suggests three potential models. • An economic model of a CBDC ecosystem is defined as the division of economic activities performed by different agents in the system and the contractual terms under which those activities are to be carried out. • Activities in the ecosystem include the issuance and ledger updates of CBDC balances (exclusive to the central bank), the network activity of connecting payor and payees (or their intermediaries) and end-user activities such as onboarding, wallets and customer service. • The framework permits a systematic analysis of the economic, technological and impact trade-offs within and across different CBDC ecosystem configurations. We analyze the trade-offs of three main CBDC ecosystem models: • Model 1: The central bank is responsible for providing the network infrastructure. Intermediaries provide all end-user services. • Model 2: The central bank is responsible for providing the network infrastructure and a basic wallet for end users. Intermediaries provide all other end-user services. • Model 3: The network infrastructure is provided by a regulated entity. Intermediaries provide all end-user services. Our analysis indicates the following: • Model 1 would enable the central bank to have direct control of the intermediary access requirements and of prices and quality standards upstream; reduced development costs for the central bank; and lower risk of market disruption downstream. • Model 2 offers the opportunity for the central bank to influence quality downstream, setting a standard for intermediaries and promoting competition in the downstream market through the provision of a central bank digital wallet. It allows for intervention in case of market failures and ensures the ability to cater to segments of the population that may be overlooked by intermediaries. • Model 3 may lower the costs borne by the central bank; however, it would limit its strategic autonomy to control upstream pricing and intermediary access. An open question is the trade-offs involved in leveraging specific components of established fast payment systems. Additional work would be needed to provide specific guidance on the pricing model of the central banks and the revenue model of intermediaries, as well as on quality and privacy standards to be set by the central bank.

The Bahamas Mandates Banks to Distribute Central Bank Digital Currency: A Sign of the Times? As someone who has been closely following the evolution of digital currencies, I find the recent move by the Bahamas to mandate banks to distribute its Central Bank Digital Currency (CBDC) both fascinating and indicative of a broader trend. The Bahamas, with its Sand Dollar, was one of the first countries to launch a CBDC, and now it’s taking a bold step by requiring all banks within its borders to adopt and distribute this digital currency. John Rolle, the governor of the Central Bank of the Bahamas, played a pivotal role in the launch of the Sand Dollar nearly four years ago. Despite the initial excitement, the uptake of the digital currency has been limited. To address this, Rolle revealed in an interview with Reuters that the central bank is transitioning from encouragement to enforcement. “We’ve begun to signal that to our institutions,” Rolle mentioned during his visit to London. He anticipates that these regulations will be established within the next two years, mandating that all commercial banks provide their clients with access to the Sand Dollar. This directive will require significant overhauls to the IT systems of commercial banks, and from my perspective, this challenge cannot be underestimated. But the central bank views this as a crucial step to drive the Sand Dollar's adoption and push mobile payments into the mainstream. Currently, the Sand Dollar represents less than 1% of the currency in the Bahamas, highlighting the considerable journey ahead. When I examine the numbers, there’s some optimism: wallet top-ups only dropped $12 million in the first eight months of last year, showing improvement compared to $49.8 million in the same period the previous year. This positive trend suggests that while the Sand Dollar holds promise, it is still in the early stages of fully integrating into the financial ecosystem. When I compare this to other countries, the differences in approach are striking. China, for example, has been aggressively promoting its Digital Yuan, but their strategy has been more about gradual incentives rather than outright mandates. In Europe, the discussions around a digital euro emphasize a smooth and voluntary transition. The Bahamas’ approach is undeniably bold, but it comes with risks. Requiring banks to distribute a CBDC could backfire if the infrastructure isn’t ready or if customers aren’t properly educated on the benefits. Yet, if this strategy works, it could place the Bahamas at the forefront of digital currency adoption, setting an example for other nations to follow. What do you think? Is this the future of banking, or is the Bahamas taking too big a risk? I’d love to hear your thoughts and opinions on this topic. Let’s discuss!