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Banking and CBDC Weekend Roundup: 11/05/2024

Are European Central Banks too slow on the CBDC track? Let's hear what the governors say. Also, in this roundup, the U.S. commercial banks fighting actively for their share of the crypto custody markets and even developing their own digital asset network.

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

Bank of France Governor François Villeroy de Galhau issued a stark warning during a speech this week: major economies are moving too slowly when it comes to rolling out central bank digital currencies.

François Villeroy de Galhau. Picture: BIS

Speaking at the BIS Innovation Summit in Basel on Monday, he warned that greater innovation is needed, and central banks may need to take action before new technologies are proven or fully formed. Villeroy de Galhau said:

"Innovation means movement, change and ultimately, a certain degree of risk-taking ... The way we make central bank money available has to be geared to the 21st century ... Sooner or later, we will need a CBDC for wholesale as well as for retail purposes."

He went on to stress that "commercial banks need not be fearful" of the changes that will emerge in the coming years.

Meanwhile, the Netherlands' central bank has released research that suggests about 51% of the Dutch population would be interested in opening a current account for digital euros. Highly educated men under 35 living in urban areas are most likely to sign up.

Shaktikanta Das. Picture: BIS

Reserve Bank of India Governor Shaktikanta Das also shared learnings from a recent digital rupee pilot at the BIS summit. He explained that their CBDC will be non-interest bearing to reduce the risk of bank disintermediation, and financial institutions will be responsible with distributing the digital rupee to their customers. Other design choices include:

  • Fixed denominations like cash to make it more familiar with the public
  • Efforts to ensure the CBDC has the same anonymity as cash
  • Work to ensure the digital rupee can be used in offline environments

Das went on to warn that permissioned blockchains "require improvements to meet the challenges of population-wide adoption."

Joachim Nagel. Picture: BIS

On the same panel, Deutsche Bundesbank president Joachim Nagel even shared fears that central banks could face an uncertain future unless they ramp up efforts to roll out CBDCs.

"I'm not a very patient person. We've lost some time already — and now I believe we have to speed up ... It's a necessity to really get there, and beside that, we have to change central banking, and central banking's future will look different."

The prudent approach is not only typical to European central banks. The Rwandan Central Bank's consultation paper recommended exactly this cautious iterative approach with multiple proofs of concepts and pilots for their CBDC.

Banking DLT and Tokenization Initiatives

Finally, to Washington, where a political row is heating up over the House of Representatives' decision to overturn a piece of SEC guidance about digital assets.

Both crypto firms and major financial institutions were critical of SAB 121, which meant custodians needed to list digital assets as a liability on their balance sheets. Banks had argued the memo was a roadblock that stopped them from innovating — while SEC Commissioner Hester Peirce, commonly referred to as "Crypto Mom" for her sympathetic views on the space, believed SAB 121 failed to protect consumers because banks are more experienced in looking after customer funds anyway.

It doesn't look like this is over though, as the White House has said President Biden is prepared to veto if it lands on his desk. A statement said:

"SAB 121 was issued in response to demonstrated technological, legal, and regulatory risks that have caused substantial losses to consumers ... Limiting the SEC’s ability to maintain a comprehensive and effective financial regulatory framework for cryptoassets would introduce substantial financial instability and market uncertainty."

Besides aiming for the thriving crypto markets, U.S. commercial banks and financial institutions are also working on their own digital asset network - Regulated Liability Network (RLN). This week the members of the consortium behind RLN announced a proof-of-concept (PoC) that will explore the feasibility of shared ledger technology to settle tokenized commercial bank money, wholesale central bank money, U.S. Treasury securities and other tokenized assets. The works will be coordinated by The U.S. Securities Industry and Financial Markets Association (SIFMA).