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Banking and CBDC Weekend Roundup: 25/05/2024

There's new legislation designed to prevent a digital dollar from intruding on consumer privacy — with a report also revealing how central banks could enhance CBDC adoption.

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

Beginning in the United States, where the House of Representatives has passed legislation to prevent the Federal Reserve from launching a central bank digital currency that would be used to surveil on the American public.

Republican Tom Emmer, who had spearheaded the CBDC Anti-Surveillance State Act, claimed any efforts to roll out a digital dollar must reflect "our values of privacy, individual sovereignty and free market competitiveness."

Picture: C-SPAN

Before the vote passed 216-192, Emmer had warned on the House floor that a CBDC could "fundamentally alter the lives of every American," adding:

"This is not hyperbole. We have already seen examples of governments developing these types of tools and use them to weaponize their financial systems against their citizens. In China, the Communist Party employs a CBDC that can be used to monitor citizens’ spending habits."

It's important to stress that this doesn't necessarily mean a CBDC won't launch at all in the U.S. — instead, Emmer has called for the Fed to seek Congressional authorization for a digital dollar that would be "open, permissionless and private."

In other developments, a new report by the National Bureau of Economic Research has suggested that consumers may be persuaded to use CBDCs if alternative payment methods incur fees. The study was based on evidence from India, where the digitally focused United Payments Interface (UPI) set up in 2016 now competes with the digital rupee. Authors wrote:

"We find that a tax on a digital payment method like the UPI decreases its usage regardless of income and education heterogeneity. Because the tax makes the CBDC seem like a more attractive and costless method of transacting, our results show that UPI users with the choice to substitute do so, with high income and high education users substituting more."

Overall, the NBER concluded that taxation on older payment methods could be attractive for countries looking to boost CBDC adoption.

In Brazil, it's been confirmed that the rollout of the digital real — known as DREX — will be delayed until 2025. There had been speculation that the debut would be postponed earlier this year. Local media outlets now report that the project's security and privacy measures lacked "the necessary maturity."

Brazil Central Bank building. Source: Buildingtourism

The Central Bank of Spain continues experiments within its wholesale CBDC research program. Now, the third contractor, Minsait was added to the existing two, Adhara and Cecabank. The program is not related to the work carried out by the ECB's Eurosystem in the context of the digital euro and is focused on simulating w-CBDC technology for funds transfers and the settlement of financial assets.

Meanwhile, ECB is staffing its digital euro Product Proposition and Stakeholder Management teams. The roles aim at "developing and advancing strategic ideas and messages on digital euro for market participants and other external stakeholders."

China's CBDC is also advancing on the cross-border frontier. In addition to the expansion of the e-CNY pilot in Hong Kong that we reported in the newsletter last week, this week an agreement for cooperation in bilateral currency transactions was signed between the People's Bank of China and the Bank of Thailand. Both countries are major contributors to the cross-border CBDC project mBridge.

Tokenization Updates

PwC has revealed that it is backing 11 businesses focused on tokenization and digital assets with more than $100 million in funding. A total of 700 projects were involved in the process. Successful applicants include Trust Stamp, which tokenizes the identities of people to clamp down on fraud. Another, Zoniqx, "focuses on creating blockchain solutions that enhance asset tokenization and trading infrastructure."

Carbon credit tokenization platform KlimaDAO announced cooperation with Mitsubishi UFJ Trust and Banking Corporation (MUFG) for the settlement of its carbon credits with a stablecoin on Progmat Blockchain. MUFG is actively developing Prograt platform to support mutual transfers and exchange among the various stablecoins and local digital currencies issued by various institutions.

There's also growing excitement that the SEC's approval of exchange-traded funds based on Ether's spot price could help accelerate the adoption of tokenization even further — allaying uncertainty among investors that ETH may end up being defined as a security.