Key Points

Bitcoin is a value store not a value transfer
While Bitcoin and similar cryptos will always have a market they are not the future of monetary systems
Layer 2 networks won't scale any currency using POW to a level high enough for larger commercial networks
CBDC - Central Bank Digital Currency model from China may become a key currency for trading and, eventually, reserve status
US won't win long-term trade and currency disputes with China but short-term agreements should improve trade again
CBDC projects by multiple Central Banks are moving forward with clearly defined use cases prior to rollout reducing risks
Future monetary systems need better collaboration on platforms, regulations, economics and governance that go beyond simple DLT smart contracts
Stablecoins have more risk but big banks are starting to issue them: JP Morgan etc

This is a summary of some key CBDC use cases including security settlements. An effective, future monetary system needs redesigned platforms, regulations, economics and governance. There's a lot of work to cover here. We'll continue to track these CBDC use cases and pilot efforts in the Hyperledger Public Sector Group https://wiki.hyperledger.org/display/PSSIG.

References

Reference_description_with_linked_URLs_______________________	Notes______________________________________________________________
capital markets, securities management concepts
m Blockchain Financial Services - DeFi - NFTs
CBDC project tracker with filters url

US Treasury Auction Data
US Treasury Data Sets
US Fiscal Data Treasury site
US Treasury Research Center site
US Treasury debt purchases monthly by foreign accounts
US Treasury debt sales results data site
Fed Now interbank transfer service ( 2023 )
hamilton-cbdc-test-notes1.pdf
https://www.bostonfed.org/news-and-events/news/2022/12/project-hamilton-boston-fed-mit-complete-central-bank-digital-currency-cbdc-project.aspx	Project Hamilton closes - Dec 2022 - Boston FED

IMF-2022-cbdc-Behind the Scenes of Central Bank Digital Currency-1644516967687.pdf IMF 2022 CBDC report link
Boston FED, MIT research on CBDC - 2022
MIT hamilton github architecture overview
https://news.mit.edu/2022/digital-currency-fed-boston-0203
Vipin's Forbes review of Hamilton CBDC project
US executive action on CBDC monitor guidance 2022	Executive Order on Ensuring Responsible Development of Digital Assets
Mastercard whitepaper on CBDC 2022 Mastercard whitepaper on CBDC 2022 link central-bank-digital-currencies_white-paper-mastercard-2022.pdf file	Mastercard whitepaper on CBDC * distributed atomic swap using HTLC**
m Design Patterns	DLT Contract Design patterns page **
	DLT New Concepts ( Fabric and more )

https://medium.com/@vipinsun/central-bank-digital-currency-1af7e072e660	Vipin on CBDC concepts, projects
cbdc-proposal-ConsenSys-CBDC-White-Paper_final_2020-01-20.pdf	Consensys CBDC proposal
https://etherisc.com/files/token_mechanics_1.0_en.pdf	Token mechanics for insurance use case
https://www.bankofengland.co.uk/-/media/boe/files/paper/2020/ central-bank-digital-currency-opportunities-challenges-and-design.pdf cbdc-uk-central-bank-digital-currency-opportunities-challenges-and-design.pdf	UK paper on CBDC March 2020
china-CBDC-strategy-whitepaper-20190803.pdf	China CBDC strategy - 2020
India defines CBDC plan 2022 url	India digital cbdc rupee CBDC to be cash-like for small value payments only. It believes it is more logical for the digital rupee not to offer interest. And it’s keen on programmability. For example, it could be used to ensure agriculture payments are spent on farming
https://www.forbes.com/sites/davidblack/2020/03/01/who-needs- cryptocurrency-fedcoin-when-we-already-have-a-national-digital- currency/#1ca5ef8b4951	Do we need a CBDC- Fedcoin?
https://hackernoon.com/the-terrifying-future-of-fedcoin-ddcbef2b9592	What's wrong with Fedcoin or a CBDC?
https://cointelegraph.com/news/fitting-the-bill-us-congress-eyes-e-cash-as-an-alternative-to-cbdc	CBDC or e-cash?
news 2021 - Boston Fed works w MIT on CBDC value. strategy
Kiffmeister categorization of CBDC
Rise of Banking with CBDC report 211206 CBDC-report-211206-india-1638801423445.pdf report
https://cointelegraph.com/news/future-of-finance-us-banks-partner-with-crypto-custodians	Banks partner with Custodial Banks to manage Digital Assets - 2022
https://sgp.fas.org/crs/misc/IF11997.pdf	Congressional Research Service Bank Custody, Trust Banks, and Cryptocurrency
https://www.cnbc.com/2021/10/05/bitcoin-custody-us-bank-launches-service-as-institutions-race-to-cater-to-crypto-demand.html	US Bank launches bitcoin custody service as institutions race to cater to crypto demand
https://www.weforum.org/whitepapers/central-bank-digital-currency-policy-maker-toolkit https://www3.weforum.org/docs/WEF_CBDC_Policymaker_Toolkit.pdf	WEF CBDC Policy Maker Toolkit for Digital Currencies - 2021 **
https://issanet.org/content/uploads/2021/12/ISSA-Blueprint-CBDC-in-Post-Trade-Settlement-December-2021-FINAL.pdf ISSA on Blueprint for CBDC in post-trade settlement link ISSA-Blueprint-CBDC-in-Post-Trade-Settlement-December-2021-FINAL.pdf file	ISSA on Blueprint for CBDC in post-trade settlement **
DTCC project Lithium on CBDC in post-trade settlement announcement.	DTCC project Lithium on CBDC in post-trade settlement ***
Swift tests CBDC cross border payment solution concept 2022	Swift tests CBDC cross border payment solution concept 2022

Currency references

https://invao.org/token-classes-explained-coin-vs-utility-token-vs-security-token/	Token Types
https://medium.com/deqode/erc20-tokens-on-hyperledger-b82399b4b969	Sample token framework example for HLF and ERC20 wallets
https://medium.com/@vipinsun/central-bank-digital-currency-1af7e072e660	Vipin on monetary impacts of CBDC - 2020
Brazil using Stellar to create CBDC 2022

https://w3c-ccg.github.io/universal-wallet-interop-spec/ wallet-2021-w3c-ccg.github-Universal Wallet 2020.pdf	Universal digital wallet spec from W3C *

Gamification references


email money transfer options	email money
https://moneytransfers.com/	not a great service to review
https://www.investopedia.com/terms/e/email-money-transfer.asp	EMTs are considered a secure method of transferring money because the notification of the transfer is done exclusively through email. The actual funds are settled through existing fund transfer networks, which banks have used for years.
https://www.xoom.com/en-us/usd/send-money/select-country	A paypal EMT service – $5 fee from paypal - expensive
https://wise.com/help/articles/2932105/can-i-send-money-to-someone-with-only-their-email-address	If you don’t know your recipient’s bank details, you can usually send money to them using their email address. If they’re on Wise, we’ll try to find their account details. If they’re not on Wise, we’ll send them an email asking for their bank details.
https://wise.com/	Wise - The 3x cheaper international account - $2 for $100 on debit card **

#jm-tips
Will your bank hold digital currency?	tip on crypto in banks - 220401

articles on emoney

cbdc-offline-payments-more-2023.pdf. link cbdc-offline-payments-more-2023.pdf file	offline cbdc payment designs
gdrv blockchain/currencies folder w digital money articles
https://cointelegraph.com/news/us-treasury-study-finds-cbdcs-a-plus-for-commercial-bank-stability	Treasury study shows CBDC improves commercial bank liquidity - 2022
https://www.federalreserve.gov/publications/files/money-and-payments-20220120.pdf us-Money and Payments- The U.S. Dollar in the Age of Digital money-FED-study-20220120.pdf file	FED study on the digital dollar - 2022 ***
https://lynch.house.gov/2022/3/rep-lynch-introduces-legislation-to-develop-electronic-version-of-u-s-dollar us-ecash-lynch.house.gov-Rep Lynch Introduces Legislation to Develop Electronic Version of US Dollar.pdf file	Lynch ecash bill article
https://lynch.house.gov/_cache/files/5/0/500162f9-7fce-4981-b9b9-16bf22e10ede/83EE032381B9431A65DE22B213D3A10E.rep.-lynch-ecash-act-fact-sheet.pdf us-ecash-bill-rep.-lynch-ecash-act-fact-sheet.pdf	Lynch ecash bill summary
https://lynch.house.gov/_cache/files/1/7/17e47e5a-2bff-42c1-b509-eb8a50931fa6/BDDFF183213326821B5C88B7F326EABB.ecashact-lynch.pdf us-ecash-detail-BILLS-117hr7231ih.pdf file	US Bill for an ecash digital dollar - text - 2022

fed-cbdc-us-dollar-reserve-currency-status-220706-finance.yahoo.com-Nothing on Horizon to Rival Dollars Status Fed Study Finds.pdf	FED study on USD reserve status 2022
central-bank-digital-currencies_white-paper-mastercard-2022.pdf	MasterCard study on CBDC 2021
US-Digital-Asset-Bill-220607-Lummis-576008331-Lummis-Bill-Draft.pdf file Lummis Digital Asset Bill draft 2022 ** link	Lummis Digital Asset Bill draft 2022 **
digital-asset-bill-2022-Lummis-Bill-Draft.pdf file Lummis Bill Draft 2022 summary 2022 link	Lummis Bill Draft 2022 summary 2022
https://github.com/responsible-financial-innovation-act22/RFIA-bill
cbdc videos
https://www.atlanticcouncil.org/cbdctracker/	CBDC project tracker ***
us cbdc will be legal sovereign currency ***	eCurrency CEO *** It's the law that makes currency; it's not necessarily tech. The laws of the United States say that the currency of the U.S. is the dollar
digital dollar promises and pitfalls 220501	A nonpartisan institution, CSIS is the top national security think tank in the world.
digital dollar pilot - DTCC 220714	Jennifer O'Rourke *** cbdc solution to replace swift? payments will be able to use cbdc but conversion rates will be a factor as they are today differences in currency regulations on privacy etc
preparing for a digital dollar - DDP 2021	David Treat ACN
digital dollar regulatory and technical challenges - 2021	moderated Q&A session
the future of money - TEDX - 220601	Huw van Steenis
How a digital dollar pilot could come soon after launch 2020	David Treat ACN
FED will advise Congress on CBDC - Powell	FED will advise Congress on CBDC - Powell "work on both the policy side and the technological side ( on CBDC )" for Congress

	project dunbar
	cbdc china cross border payments

Global Forum 2022- CBDC
CBDC-digital-dollar-lithium-concepts v2 gdoc
BRICS countries looking to CBDC to end Swift - Western sanctions - 2023

CBDC use case Concepts

ISSA study on CBDC for Post-Trade Settlement - 2021

https://issanet.org/content/uploads/2021/12/ISSA-Blueprint-CBDC-in-Post-Trade-Settlement-December-2021-FINAL.pdf

ISSA on Blueprint for CBDC in post-trade settlement link

ISSA-Blueprint-CBDC-in-Post-Trade-Settlement-December-2021-FINAL.pdf file

CBDC and SC offers potential advantages over today’s settlement methods. This is particularly apt when discussing the settlement of securities on DLT, as the simultaneous exchange of CBDC/SC and securities tokens (aka atomic settlement) is a key attribute of a DLT solution and the creation of a Delivery versus Payment DvP

this blueprint which will outline the roles (including the possible changes of current roles), challenges, opportunities and potential changes that the impact of CBDC & SC could have on the banking, fintech, and securities industry.

The use of CBDC can provide several benefits including:

a. faster settlement finality
b. liquidity and integrity2
c. atomic settlement
d. reduced operational work to reconcile between many different systems (including the possibility of aligning securities and cash on a single platform)
e. programmability (e.g., to detect and call out on the potential of systemic liquidity gridlock,…etc)
f. process and responsibility changes to reduce risk and increase efficiency

The use of CBDC may also present new risks for the ecosystem.

To maintain the benefits of true DvP1 settlement in central bank money, it is logical to conclude that a CBDC using DLT as the underlying technology would be an enabler for this.

A French paper on CBDC settlement for bond trades concludes:

“.. the full value of blockchain cannot be realized by simply replicating ‘as is’ the securities settlement operations processes. ... enabling direct access by end investors on the blockchain platform via their custodians and/or removing the current post trade processing breaks, would allow blockchain technology to significantly improve post-trade operations. This could then remove reconciliation processes, reduce the overall cost and increase the efficiency of the capital markets.”

Jim>> this new DLT model introduces new scaling, governance and risk challenges while also reducing the need for some current reconciliation and netting processes

Keys for success with CBDC for post trade settlements:

token standardisation
designed for interoperability
programmability
designed for fast adoption (be that open source, using existing infrastructure and existing platforms, or other solutions)
ability to auto-convert between CBDC in the currency of choice; i.e., not a “global” coin, but convertible coins

it is imperative that CBDC solutions are designed to be interoperable.

This means interoperable not only between CBDCs, but also between existing securities platforms and ecosystems, since a period of co-existence is likely.

the potential implementation of CBDC using DLT as the underlying technology within the wholesale securities markets will become the catalyst for the development of DLT adoption in securities ecosystems.

Stable coins are not well regulated or mature but underpin existing DeFi systems

To be genuinely useful, SC need to be regulated and offer both consumer protection and financial stability: i.e., be a store of value which is easily convertible. As yet, the regulation for SC is at an immature state, but that has not prevented a number of SC underpinning the Decentralised Finance (DeFi) environment

Jim>> central banks will issue CBDCs but it won't impact securities settlement until a global marketplace evolves with interoperability, low-cost transactions and currency conversions

Governance issues to resolve include:

Interoperability extends to cross-border legal and regulatory compatibility where jurisdictions consider how domestic laws and regulations view and treat foreign CBDC
AML / CFT / KYC requirements: digital ID is a rising issue in certain jurisdictions and will aid in meeting AML / CFT / KYC requirements.
Digital ID may also be central to the design and controls of a CBDC
Privacy and data protection
Currency controls, tax law, property law, securities and payment regulations

Executive Order on Ensuring Responsible Development of Digital Assets - 220309

https://www.whitehouse.gov/briefing-room/presidential-actions/2022/03/09/executive-order-on-ensuring-responsible-development-of-digital-assets/?mc_cid=14ab32b97c&mc_eid=931da259b6

We must take strong steps to reduce the risks that digital assets could pose to consumers, investors, and business protections; financial stability and financial system integrity; combating and preventing crime and illicit finance; national security; the ability to exercise human rights; financial inclusion and equity; and climate change and pollution.

Objectives

ensure safeguards for responsible development of digital assets to protect consumers
ensure that safeguards are in place and promote the responsible development of digital assets to protect consumers, investors, and businesses; maintain privacy; and shield against arbitrary or unlawful surveillance, which can contribute to human rights abuses.

controls to mitigate illicit finance reducing market and national security risks similar to existing financial solutions
Digital asset issuers, exchanges and trading platforms, and intermediaries whose activities may increase risks to financial stability, should, as appropriate, be subject to and in compliance with regulatory and supervisory standards that govern traditional market infrastructures and financial firms, in line with the general principle of “same business, same risks, same rules.”

Growth in decentralized financial ecosystems, peer-to-peer payment activity, and obscured blockchain ledgers without controls to mitigate illicit finance could also present additional market and national security risks in the future. The United States must ensure appropriate controls and accountability for current and future digital assets systems to promote high standards for transparency, privacy, and security — including through regulatory, governance, and technological measures — that counter illicit activities and preserve or enhance the efficacy of our national security tools

sustain United States financial power and promote United States economic interests.
We must reinforce United States leadership in the global financial system and in technological and economic competitiveness, including through the responsible development of payment innovations and digital assets. Continued United States leadership in the global financial system will sustain United States financial power and promote United States economic interests.

help underserved communities with greater low cost access to financial products and services
The United States has a strong interest in promoting responsible innovation that expands equitable access to financial services, particularly for those Americans underserved by the traditional banking system, including by making investments and domestic and cross-border funds transfers and payments cheaper, faster, and safer, and by promoting greater and more cost-efficient access to financial products and services.

reduce climate impacts and illicit activities in digital asset systems
The United States has an interest in ensuring that digital asset technologies and the digital payments ecosystem are developed, designed, and implemented in a responsible manner that includes privacy and security in their architecture, integrates features and controls that defend against illicit exploitation, and reduces negative climate impacts and environmental pollution, as may result from some cryptocurrency mining.

Coordination

The Assistant to the President for National Security Affairs (APNSA) and the Assistant to the President for Economic Policy (APEP) shall coordinate, through the interagency process described in National Security Memorandum 2 of February 4, 2021 (Renewing the National Security Council System), the executive branch actions necessary to implement this order.

Policy and Actions Related to United States Central Bank Digital Currencies.

My Administration places the highest urgency on research and development efforts into the potential design and deployment options of a United States CBDC.

My Administration sees merit in showcasing United States leadership and participation in international fora related to CBDCs and in multi‑country conversations and pilot projects involving CBDCs.

We should prioritize timely assessments of potential benefits and risks under various ( CBDC ) designs to ensure that the United States remains a leader in the international financial system

CBDC report required in 180 days from 3/9/22

Based on the potential United States CBDC design options, this report shall include an analysis of:
   (i)    the potential implications of a United States CBDC, based on the possible design choices, for national interests, including implications for economic growth and stability;
   (ii)   the potential implications a United States CBDC might have on financial inclusion;
   (iii) the potential relationship between a CBDC and private sector-administered digital assets;
   (iv)   the future of sovereign and privately produced money globally and implications for our financial system and democracy;
   (v)    the extent to which foreign CBDCs could displace existing currencies and alter the payment system in ways that could undermine United States financial centrality;
   (vi)   the potential implications for national security and financial crime, including an analysis of illicit financing risks, sanctions risks, other law enforcement and national security interests, and implications for human rights; and
   (vii) an assessment of the effects that the growth of foreign CBDCs may have on United States interests generally.

continue to research and report on the extent to which CBDCs could improve the efficiency and reduce the costs of existing and future payments systems,

The Attorney General shall:
(i) within 180 days of the date of this order, provide an assessment of whether legislative changes would be necessary to issue a United States CBDC
(ii) within 210 days of the date of this order, provide a legislative proposal

Measures to Protect Consumers, Investors, and Businesses

It is critical to ensure that digital assets do not pose undue risks to consumers, investors, or businesses, and to put in place protections as a part of efforts to expand access to safe and affordable financial services.

submit a report on the implications of developments and adoption of digital assets and changes in financial market and payment system infrastructures for United States consumers, investors, businesses, and for equitable economic growth. identify conditions that would drive mass adoption of different types of digital assets and the risks and opportunities such growth might present to United States consumers, investors, and businesses, including a focus on how technological innovation may impact these efforts and with an eye toward those most vulnerable to disparate impacts. The report shall also include policy recommendations, including potential regulatory and legislative actions,

submit a technical evaluation of the technological infrastructure, capacity, and expertise that would be necessary at relevant agencies to facilitate and support the introduction of a CBDC system

submit a report on the role of law enforcement agencies in detecting, investigating, and prosecuting criminal activity related to digital assets. The report shall include any recommendations on regulatory or legislative actions, as appropriate.

consider what, if any, effects the growth of digital assets could have on competition policy.

consider the extent to which privacy or consumer protection measures may be used to protect users of digital assets and whether additional measures may be needed

consider the extent to which investor and market protection measures may be used to address the risks of digital assets and whether additional measures may be needed.

submit a report to the President on the connections between distributed ledger technology and short-, medium-, and long-term economic and energy transitions and address:
(A) potential uses of blockchain that could support monitoring or mitigating technologies to climate impacts, such as exchanging of liabilities for greenhouse gas and
(B) implications for energy policy, including as it relates to grid management and reliability, energy efficiency incentives and standards, and sources of energy supply.

Actions to Promote Financial Stability, Mitigate Systemic Risk, and Strengthen Market Integrity

The United States must assess and take steps to address risks that digital assets pose to financial stability and financial market integrity.

produce a report outlining the specific financial stability risks and regulatory gaps posed by various types of digital assets and providing recommendations to address such risks.

Actions to Limit Illicit Finance and Associated National Security Risks.

need for ongoing scrutiny of the use of digital assets, the extent to which technological innovation may impact such activities, and exploration of opportunities to mitigate these risks through regulation, supervision, public‑private engagement, oversight, and law enforcement

submit additional views on illicit finance risks posed by digital assets, including cryptocurrencies, stablecoins, CBDCs, and trends in the use of digital assets by illicit actors

develop a coordinated action plan based on conclusions for mitigating the digital‑asset-related illicit finance and national security risks addressed in the updated strategy.

notify ( other agencies ) on any pending, proposed, or prospective rule makings to address digital asset illicit finance risks

Policy and Actions Related to Fostering International Cooperation and United States Competitiveness.

There must also be cooperation to reduce inefficiencies in international funds transfer and payment systems.

The United States must continue to work with international partners on standards for the development and appropriate interoperability of digital payment architectures and CBDCs to reduce payment inefficiencies and ensure that any new funds transfer and payment systems are consistent with United States values and legal requirements

the United States established the G7 Digital Payments Experts Group to discuss CBDCs, stablecoins, and other digital payment issues. While a CBDC would be issued by a country’s central bank, the supporting infrastructure could involve both public and private participants

Such international work should continue to address the full spectrum of issues and challenges raised by digital assets, including financial stability, consumer, investor, and business risks, and money laundering, terrorist financing, proliferation financing, sanctions evasion, and other illicit activities.

My Administration will elevate the importance of these topics and expand engagement with our critical international partners, including through fora such as the G7, G20, FATF, and FSB. ... to ensure that our core democratic values are respected; consumers, investors, and businesses are protected; appropriate global financial system connectivity and platform and architecture interoperability are preserved; and the safety and soundness of the global financial system and international monetary system are maintained

establish a framework for interagency international engagement with foreign counterparts and in international fora to, as appropriate, adapt, update, and enhance adoption of global principles and standards for how digital assets are used and transacted, and to promote development of digital asset and CBDC technologies consistent with our values and legal requirement

submit a report to the President on priority actions taken under the framework and its effectiveness

establish a framework for enhancing United States economic competitiveness in, and leveraging of, digital asset technologies

submit a report to the President on how to strengthen international law enforcement cooperation for detecting, investigating, and prosecuting criminal activity related to digital assets.

Definitions. For the purposes of this order:

(a) The term “blockchain” refers to distributed ledger technologies where data is shared across a network that creates a digital ledger of verified transactions or information among network participants and the data are typically linked using cryptography to maintain the integrity of the ledger and execute other functions, including transfer of ownership or value.
(b) The term “central bank digital currency” or “CBDC” refers to a form of digital money or monetary value, denominated in the national unit of account, that is a direct liability of the central bank.
(c) The term “cryptocurrencies” refers to a digital asset, which may be a medium of exchange, for which generation or ownership records are supported through a distributed ledger technology that relies on cryptography, such as a blockchain.
(d) The term “digital assets” refers to all CBDCs, regardless of the technology used, and to other representations of value, financial assets and instruments, or claims that are used to make payments or investments, or to transmit or exchange funds or the equivalent thereof, that are issued or represented in digital form through the use of distributed ledger technology. For example, digital assets include cryptocurrencies, stablecoins, and CBDCs. Regardless of the label used, a digital asset may be, among other things, a security, a commodity, a derivative, or other financial product. Digital assets may be exchanged across digital asset trading platforms, including centralized and decentralized finance platforms, or through peer-to-peer technologies.
(e) The term “stablecoins” refers to a category of cryptocurrencies with mechanisms that are aimed at maintaining a stable value, such as by pegging the value of the coin to a specific currency, asset, or pool of assets or by algorithmically controlling supply in response to changes in demand in order to stabilize value.

Reactions to the Executive Action on Digital Assets

https://www.forbes.com/sites/billybambrough/2022/03/09/leak-reveals-bidens-crypto-plans--sending-the-price-of-bitcoin-ethereum-bnb-solana-cardano-xrp-terras-luna-and-avalanche-higher/?sh=3f5f869030f9

Banks partner with Custodial Banks to manage Digital Assets - 2022

Key Questions to Ask on the US Executive Order

Objectives potential

What are the key objectives?
Which ones are likely to be met first?
Which ones are NOT likely to be met soon?

CBDC

If the CBDC tasks are completed, what's the likely result?
What CBDC laws should be enacted to protect consumers?
What laws exist to protect consumers with fiat currency?
Are current digital infrastructures adequate for CBDC security?
How would infrastructure involve both public and private participants for CBDC?
What views on illicit finance risks posed by digital assets, crypto CBDCs, by illicit actors will be reported?
For the US citizens, will these regulations and CBDC hurt or help Bitcoin?
what does the principle of “same business, same risks, same rules.” for digital asses mean?

International cooperation and competitiveness

will this reduce inefficiencies in international funds transfer and payment systems?
Thoughts on "a framework for international engagement with foreign counterparts to enhance adoption of global standards for how digital assets are used and transacted"?

Expected legislation

Will blockchain be used to monitor economic and energy impacts?
what is the implication for climate change on digital assets?
what regulatory gaps posed by digital assets need to be managed?
What is needed to reduce illicit finance and security risks?

Impacts on financial services

What is the expected impact on DEFI solutions from this program?
What is the expected impact on CEFI solutions from this program?
Will the US monitor financial transactions more than it does now?
Will the unbanked prefer to remain unbanked?
How will US encourage unbanked to move to digital financial systems and governance?
What is the expected impact for US middle class on financial services costs going forward?

Thoughts on Executive Order on Digital Asset Management and Regulation

Remember the pandemic and the pressure OVERNIGHT that hit the pharmaceutical companies to invent and rollout tests, vaccines and therapies for Covid?

This executive order just did that for digital assets management.

The DeFi Opportunity for the Digital Asset program - DeFi has been disrupted, needs reinvention

What you see now is the new DeFi companies are now disrupted. They need to move to Class A controls, governance, compliance, security, resiliency as SIFMU organizations. A small but increasing group of DeFi organizations have made this a priority to follow regulations and are moving in that direction now.

The CeFi Opportunity for the Digital Asset program - CeFi needs fast, coordinated innovation, efficient delivery for all

The Traditional Finance companies also have pressure to expand their strong governance controls to deliver more efficient, low-risk, affordable, inclusive services adapted for digital assets and integration with other digital asset providers.

CeFi providers should offer to participate where possible with Federal agencies in the assessment and planning reports to ensure a valuable CBDC program and mitigation of risks ensuring the objectives of the Executive Action are met

Read Between the Lines

The ideas that follow are mine alone and do not represent any organization or authority.
Some potentially large amount of these will turn out to be totally wrong.
The US government can change their goals, plans at anytime invalidating these ideas.

The key objectives
1. ensure safeguards for responsible development of digital assets to protect consumers
2. controls to mitigate illicit finance reducing market and national security risks similar to existing financial solutions
3. sustain United States financial power and promote United States economic interests.
4. help underserved communities with greater low cost access to financial products and services.
5. reduce climate impacts and illicit activities in digital asset systems
Going from the EA order to implementation will take years
While the required reports are due between 90 days and 1 year, many actions will require legislative approval which will add at least another year.
As a result, full implementation can't happen before 2024
Federal control of all financial assets & markets
Measures proposed ( for the reasons noted ) in the Executive Action drive toward full central control and governance of all digital assets in line with other financial assets. Under the US Constitution, States controlled banking and voting regulations except where superseded by Federal Law. The erosion of state controls continues
Keep USD as the world reserve currency
"Continued United States leadership in the global financial system will sustain United States financial power and promote United States economic interests."
Assumes US should stay in charge of the World's financial systems and reserve currency even though we are not early in managing digital assets compared to other countries. China has spent 20+ years working to remove USD as the single reserve currency with limited success so far. Tracking foreign purchases of US debt every month at Fed auctions will show if US is losing our primary reserve currency role. This is a big issue for US long term economic health.
US actions on seizing Russian assets over Ukraine invasion has created the largest public threat to the USD role as the reserve currency ( see article ). It's likely the USD role as the world's reserve currency will decrease ( a threat identified back in 2006 ).
Improve financial system inclusion for underserved
A few core principles of DeFi on financial inclusion are a strong focus on the required outcomes for this program. DeFi has strong goals but limited success on these goals so far due to a variety of factors.
DeFi disrupted - should be regulated similar to CeFi
"Digital asset issuers, exchanges and intermediaries should be subject to regulatory and supervisory standards that govern traditional market infrastructures and financial firms, in line with the general principle of “same business, same risks, same rules.”
Most of the required outcomes focus on governance, control, compliance, regulatory and consumer transparency are similar to many CeFi solutions for governance.
DeFi will operate and compete with CeFi under the same rules. Both can update to new technologies.
Digital Asset management now is considered SIFMU services with hardened security, resiliency.
Systemically Important Financial Market Utilities – special responsibilities under US law for key banks, markets etc
A more secure Federal Identity program using SSI technology
with the comparable system protections and recovery Social Security offers will be key for financial system inclusion and security
Traditional central identity and federated identities ( login with your twitter id ) are much higher risk
Coordination of standards and regulations with other countries, particularly EU, is key
Standards on many of the technologies are generally not agreed to yet. Concepts and best practices have some limited consensus technically.
Getting agreement on financial regulations across key countries is never simple but always important ( KYC, AML etc )
The Executive Action hints strongly at the desired outcomes for many of the issues. Bitcoin does not align well as part of a CBDC ecosystem compared to other currencies.

US Commerce Department Issues RFC on Digital Asset Technologies

https://www.commerce.gov/news/press-releases/2022/03/us-secretary-commerce-gina-raimondo-statement-ensuring-responsible

https://www.govinfo.gov/content/pkg/FR-2022-05-19/pdf/2022-10731.pdf

Gina Raimondo, Secretary of Commerce, issued an RFC ( Request for Comment ) on the development of a framework to enhance US economic competitiveness to comply with the President's directive ‘‘Ensuring Responsible Development of Digital Assets’’ to leverage digital assets in government.

US Treasury on more regulation and oversight for cryptocurrencies - 220916

https://finance.yahoo.com/news/treasury-crypto-regulation-reports-september-100041563.html

The U.S. Treasury is warning in three new reports that cryptocurrencies pose meaningful risks for consumers, investors, and businesses if not properly regulated.

The government is also recommended moving forward with work on a central bank digital currency, but stopped short of recommending one.

The reports encourage the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) to “aggressively” pursue investigations and enforcement actions against crypto companies that aren’t in compliance with laws.

Treasury also urges the Consumer Financial Protection Bureau (CFPB) and Federal Trade Commission (FTC) to double down on efforts to monitor consumer complaints and to enforce against unfair, deceptive, or abusive practices.

“At the same time, if these risks are mitigated, digital assets and other emerging technologies could offer significant opportunities,” said Treasury Secretary Janet Yellen.

Better governance and transparency are key

One of the reports contends customers were regularly mislead about crypto’s features and expected returns, and that non-compliance with regulations is widespread. One study found nearly a quarter of digital coin offerings had disclosure or transparency issues, including plagiarized documents or false promises of guaranteed returns.

CBDC support building in US Government agencies as expected from the March Executive Action on Digital Assets

The second of Treasury's three reports recommends moving forward with work on a CBDC, or central bank digital currency, in case it’s determined to be in the national interest. While no decisions have been made to issue a CBDC, the report is meant to help policymakers understand the technical design choices of a CBDC system.

“Consistent with the President’s directive to place the 'highest urgency' on research and development of a U.S. central bank digital currency, the Administration encourages the Federal Reserve to continue its research and experimentation,” NEC Director Brian Deese said in a statement.

Deese said the White House also launched an interagency working group, including the National Security Council and Treasury, to support the Fed’s efforts by the considering policy implications of a potential CBDC, especially for our national security. The group will meet regularly to discuss updates and progress.

Treasury says a CBDC would be considered legal tender and would be convertible one-for-one into reserve balances or paper currency.

Congress House Reports on Digital Asset Regulation

House Financial Services Committee Reports Digital Asset Market Structure, National Security Legislation to Full House for Consideration

https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=408940#:~:text=H.R.%201747%2C%20the%20%E2%80%9CBlockchain%20Regulatory,service%20businesses%20under%20the%20law.

Press Releases

House Financial Services Committee Reports Digital Asset Market Structure, National Security Legislation to Full House for Consideration

Washington, July 26, 2023 -

Today, the House Financial Services Committee passed six pieces of legislation out of Committee—many of which received bipartisan support—that provide robust consumer protections and legislative clarity for the digital asset ecosystem, as well as protect our national security. Included among this legislation is the FIT for the 21^st Century Act, an unprecedented joint effort to bring digital assets into the regulatory perimeter, a historic step for American innovation and consumer protection.

More information on all 6 bills reported out of the Financial Services Committee can be found below including Member remarks in support of their legislation:

H.R. 4763, the “Financial Innovation and Technology for the 21^st Century Act,” sponsored by Rep. French Hill (AR-02), creates a comprehensive regulatory framework for the issuance and trading of digital assets at the SEC and the CFTC. It also provides clarity on which digital assets are regulated by each agency to allow innovators to build and develop new products with confidence, while also securing key consumer protections for purchasers of digital assets.

Watch Rep. Hill’s remarks in support of H.R. 4763 here or by clicking the image above.

H.R. 1747, the “Blockchain Regulatory Certainty Act,” offered by Rep. Tom Emmer (MN-06), provides that blockchain developers and providers of blockchain services that do not take control of consumer funds are not deemed financial institutions or money service businesses under the law.

Watch Rep. Emmer’s remarks in support of H.R. 1747 here or by clicking the image above.

H.R. 2969, the “Financial Technology Protection Act of 2023,” offered by Rep. Zach Nunn (IA-03), establishes the Independent Financial Technology Working Group to Combat Terrorism and Illicit Financing under the Department of Treasury. It also encourages public-private sector partnership in examining issues surrounding illicit finance in the digital asset ecosystem.

Watch Rep. Nunn’s remarks in support of H.R. 2969 here or by clicking the image above.

H.R. 4768, the “No Russian Agriculture Act,” offered by Rep. Maxine Waters (CA-43), directs the U.S. Executive Directors of the International Financial Institutions to use its voice, vote, and influence to encourage the International Financial Institutions to invest in projects that decrease reliance on Russia for agricultural commodities.

Watch Rep. Waters’ remarks in support of H.R. 4768 here or by clicking the image above.

H.R. 4765, the “Exposing China’s Support for the Taliban Act,” offered by Rep. Stephen Lynch (MA-08), requires Treasury to carry out a study and brief Congress on the financial activities of China and Chinese entities in connection with the finances of Afghanistan and the Taliban, including activities that support illicit financial networks.

Watch Rep. Lynch’s remarks in support of H.R. 4765 here or by clicking the image above.

H.R. 3244, the “Stop Fentanyl Money Laundering Act of 2023,” offered by Rep. Blaine Luetkemeyer (MO-03), provides authority to the Secretary of the Treasury to take special measures to thwart money laundering in connection with illicit fentanyl and narcotics financing. It also alters suspicious activity reports to make it easier for law enforcement to identify illegal narcotics trafficking.

Watch Rep. Luetkemeyer’s remarks in support of H.R. 3244 here or by clicking the image above.

Recommended Activities

Hyperledger Public Sector Program

EU Blockchain Forum

GBA

ATARC

Liz Tanner and RI on SSI for CBDC

Interviews with selected parties

Article for Forbes or ?

Other options to a FED CBDC for US digital currency

https://cointelegraph.com/news/fitting-the-bill-us-congress-eyes-e-cash-as-an-alternative-to-cbdc

cbdc-or-ecash-2022-cointelegraph.com-Fitting the bill US Congress eyes e-cash as an alternative to CBDC.pdf

States with Digital Asset Orders or Legislation

https://pro.bloomberglaw.com/brief/cryptocurrency-laws-and-regulations-by-state/

State-laws-crypto-2022-march-pro.bloomberglaw.com-Cryptocurrency Laws and Regulations by State.pdf file

Wyoming

Rhode Island

https://legiscan.com/gaits/search?state=RI&keyword=blockchain

economic growth blockchain act, set regulations for the sale of hemp, regulate virtual and digital assets, and establish depository banks for these purposes.

https://legiscan.com/RI/bill/H7254/2022

develop and 28 implement a blockchain filing system specific only to record council actions

review of blockchain and related technology,

hemp - ( alcohol ? ) - establish a track and trace program for reporting the movement of regulated 10 products.

Establish procedures for the incorporation, chartering and operation of special purpose depository institutions;

analysis >> https://cointelegraph.com/news/rhode-island-introduces-vital-blockchain-growth-act

RI currency transmission law - DBR - FAQS

https://dbr.ri.gov/sites/g/files/xkgbur696/files/documents/rules/banking_securities/Currency_Transmission_FAQ_-_Frequently_Asked_Questions_NEW.pdf

Yes. Cryptocurrency wallets (and the like) squarely fall within the definition of “maintaining control of virtual currency” “on behalf of others” when the business has custody of funds in the wallets. § 19-14-1(4)(ii).

RI currency transmission licensure would NOT be required for a business that sells or buys VC in customer transactions in exchange for fiat consideration.

The definition of “virtual currency” EXCLUDES online game tokens,

article - RI requires license for virtual currency transactions in most cases

https://www.jdsupra.com/legalnews/rhode-island-requires-licensure-for-80512/

RI crypto rewards for green home builders act

https://cointelegraph.com/news/rhode-island-proposes-crypto-rewards-for-green-home-builders

If the project has been able to reduce its utility costs, the state will award a cryptocurrency credit to the property owner.

The newly proposed bill is meant to stimulate new housing developments in the state that suffers from a housing shortage exacerbated by increased prices year-on-year

RI Blockchain Legislation status - 2019

https://freemanlaw.com/cryptocurrency/rhode-island-blockchain-legislation-status-2/

New Hampshire

https://www.governor.nh.gov/news-and-media/governor-chris-sununu-establishes-governors-commission-cryptocurrencies-and-digital

California

https://www.cnbc.com/2022/05/04/california-governor-signs-executive-order-on-cryptocurrencies.html

CBDC project tracker with filters url

CBDC projects in development using DLT in 2023

Trade and USD reserve currency

US not prepared for the economic sanctions on Russia - 220423

As Fortress Russia crumbles, the global economy faces a new world order

https://news.yahoo.com/fortress-russia-crumbles-global-economy-082411869.html

us-sanctions-break-us-role-as-reserve-currency-2022-As Fortress Russia crumbles the global economy faces a new world order.pdf file

The trade impacts are not hard to forecast for most of us including those in government.

The long-term hit to the US dollar as the World's primary reserve currency was missed.

Some in global finance, including the International Monetary Fund, fear the onslaught of Western sanctions means the global economy is splitting into camps in the wake of Russia’s invasion, one led by the US and the other by China, with disastrous consequences.

They believe the world economy is fracturing into two parts. Russia will be forced to move away from Western finance, tech and the US dollar, perhaps into Chinese President Xi Jinping’s arms, while others could follow to avoid being next.

“The war also increases the risk of a more permanent fragmentation of the world economy into geopolitical blocks with distinct technology standards, cross-border payment systems, and reserve currencies,” IMF chief economist Pierre-Olivier Gourinchas said last week as he delivered a grim set of global economic forecasts in the wake of the invasion of Ukraine.

He said this “tectonic shift” where trade and standards separate into blocks would be a “disaster” for the global economy. It would be “a major challenge to the rules-based framework that has governed international and economic relations for the last 75 years”, Gourinchas added.

Most see a permanent shift away in the global economy and US dollar as reserver currency

While the big thinkers in economics appear to agree that a fundamental shift is underway in the global economy, they remain divided over what kind of post-Covid, post-Ukraine war world will emerge. Some believe the war will cause economic fragmentation and the demise of the dollar as the world’s reserve currency; others swat away the idea that such a seismic shift is underway.

“Some of these trends will be accelerated, particularly [given] you are drawing Russia, China, India and other countries closer together. They're starting to use the renminbi in bilateral trade instead of the dollar.”

Government-imposed financial sanctions taken against Russia by the West have been sweeping and devastating, while individual companies have delivered a blow by pulling their operations out of the country. There are worries this could force Russia and others to seek alternatives to a global financial system dominated by the West and its financial heavyweights.

the West targeted its lenders and central bank.

Once considered a “nuclear” option, a number of Russian banks were ejected from the Swift global payments messaging system, making it far harder for them to do business and make cross-border payments. Visa and Mastercard also suspended their operations in the country, blocking access to new cards issued by the payment giants.

Meanwhile, following the invasion, the West froze half of the Russian central bank’s foreign currency and gold reserves, hindering Moscow’s ability to prop up the rouble and its banking system.

Under Putin’s Fortress Russia plan to insulate it from sanctions, Moscow had built up a $640bn war chest of foreign reserves. The freezing of these reserves was considered a game-changing move, in an unexpected and powerful escalation of the financial siege on Russia. It prompted a plunge in the rouble and the introduction of capital controls in the country.

Some fear this weaponisation of finance and the US dollar has long-term consequences, perhaps luring countries to a new rival sphere headed by China.

Alternate financial systems grow in the East

Russian banks are turning to alternatives to the Belgium-based Swift in order to smooth cross-border payments. Its central bank has its own system it has already offered India for rouble payments, while China also has an alternative that could rival Swift.

Moscow’s lenders have turned to China’s payment giant UnionPay to help them issue debit and credit cards after Visa and Mastercard joined the mass exodus of Western brands from Russia. The two American payment heavyweights accounted for 70pc of the Russian debit card market but the Kremlin created its own system, Mir, following the Crimea annexation

Fears of a split have also rekindled the long-running debate over whether the US dollar is at risk of losing its status as the world’s reserve currency.

“After this war is over, ‘money’ will never be the same again,” said Zoltan Pozsar at Credit Suisse as he declared a “new world (monetary) order” following the freezing of the Russian central bank’s reserves.

Russia, however, claims several buyers have agreed to pay for its gas in roubles, while Saudi Arabia is reportedly considering accepting China’s currency instead of dollars for oil sales to Beijing amid tensions with Washington.

“This was a weapon that the US had been increasingly using,” says Perkins. “There's always been warnings going back at least a decade, saying ‘you can't keep doing this over and over again’ because eventually you get to a point where you change the status of the dollar. It’s just this is so high profile.”

He says there is now a “turning point”, but highlights that any move away from the dollar would be slow moving.

Prof Barry Eichengreen, an expert at University of California, Berkeley:

“The US was joined by the euro area, the UK, and Japan, among others, in imposing financial sanctions,” he says, adding that the Chinese renminbi is “an unattractive alternative to most countries”.

Trade is becoming more localized now slowly

Meanwhile Paul Donovan, chief economist of UBS Global Wealth Management, says the concept of a reserve currency will become less important as world trade “is likely to become less global over time”.

“If you are doing less global trade, then the importance of a global invoicing currency is less and central banks don't need to hold quite so much in foreign exchange reserves.”

He believes the global economy is not going through a splintering but a localisation effect where digitisation reduces the need for physical trade and production moves closer to consumers, such as clean energy over imported gas.

“A localisation process is something which doesn’t necessarily split the world into two, it splits the world into 196.”

Why US role as reserve currency matters

The US dollar has been dominant across the globe since the second world war, becoming the world’s reserve currency. This is the currency held most by central banks as part of foreign reserves and financial institutions to help facilitate global trade.

Countries, including China, have amassed almost $13 trillion in foreign reserves - around 60pc in dollars. As the sanctions on Russia have shown, however, those reserves could suddenly become useless if they are paralysed by the West.

Dollars have also been vital for global trade, being used for everything from invoicing in international business to buying commodities, such as oil.

Net takeaways on the Ukraine war and sanctions

Russia showed it can' be trusted as a military force

The US showed it can't be trusted as a financial force

Saudi Arabia deal with China shows the failure of US foreign policy again

The Ukraine war fits China's agenda. It wanted to move to an alternate financial system from the West. The US made that easy.

The US lost twice here: Russia conquers Ukraine ( more or all ) AND the US financial system declines rapidly as a force in the World Economy

A new alignment is growing moving forward

The West = North America, Europe, Japan, Australia, Israel

The East = China, Russia, North Korea, Iran

The Opportunists = India, Middle East, South America, Southeast Asia, Africa

The Opportunists are the key. If they all move West or East, that will tip the balance of power going forward

The threats from the East

military expansion
loss of freedom from democratic governments
loss of West security guarantees

The benefits from the East

social stability
alternate reserve currency
trade models built on commodities, agriculture, manufactured goods
East security guarantees

US dollar is leading reserve currency now - issues

https://www.cfr.org/backgrounder/dollar-worlds-currency

The dollar’s status as the global reserve currency was cemented in the aftermath of World War II by the 1944 Bretton Woods Conference, in which forty-four countries agreed to the creation of the IMF and the World Bank. (Some economists have argued that the dollar had overtaken the British pound [PDF] as the leading reserve currency as early as the mid-1920s.) At Bretton Woods, a system of exchange rates was created wherein each country pegged the value of its currency to the dollar, which itself was convertible to gold at the rate of $35 per ounce. This was designed to provide stability, and prevent the “beggar-thy-neighbor” currency wars of the 1930s—a response to the Great Depression—by which countries abandoned the gold standard and devalued their currencies to try to gain a competitive advantage.

By 1973, the current system of mostly floating exchange rates was in place. Many countries still manage their exchange rates either by allowing them to fluctuate only within a certain range or by pegging the value of their currency to another, such as the dollar.

Factors that contribute to the dollar’s dominance include its stable value, the size of the U.S. economy, and the United States’ geopolitical heft.

Demand for US debt high, rates low as chief reserve currency

Over time, U.S. trade swung into a sustained deficit, supported in part by global demand for dollar reserves. Such demand helps the United States to issue bonds at a lower cost, since higher demand for a government’s bonds means it doesn’t have to pay as much interest to entice buyers, and helps to keep the cost of the United States’ now substantial external debt down.

US sanctions should be limited given reserve currency - “There’s no doubt that if the dollar were not so widely used, the reach of sanctions would be reduced,”

Consider favored nation trade status changes instead ??

Downside of reserve currency

A stronger currency makes imports cheaper and exports more expensive, which can hurt domestic industries that sell their goods abroad and lead to job losses. During times of economic turmoil, investors seek the safety of the dollar, which squeezes exporters at an already difficult time. “When there’s a big international role for your currency, you lose control over it,”

Countries can keep the value of its currency artificially low by accumulating dollar reserves, hurting U.S. exporters in the process improving their trade and payment balances with the US ( see China for decades )

US debt levels ( risk ) and interest rates ( return ) drive dollar demand as well

IMF SDR ( Special Drawing Rights ) - should it have a role in trade?

calls to use the IMF’s Special Drawing Rights (SDR) —an internal currency that can be exchanged for hard currency reserves—as a global reserve currency. The value of SDR is based on five currencies: the euro, pound sterling, renminbi, U.S. dollar, and yen. Proponents argue that such a system would be more stable than one based on a national currency whose issuer must respond to both domestic and international needs. The idea of using SDR was endorsed by the governor of China’s central bank, Zhou Xiaochuan, in 2009. Economists including Joseph Stiglitz have also supported a larger role for SDR.

But for SDR to be adopted widely, it would need to function more like an actual currency, accepted in private transactions with a market for SDR-denominated debt, Eichengreen writes. The IMF would also need to be empowered to control the supply of SDR, which, given the United States’ de facto veto power within the organization’s voting structure, would be a tall order.

Dollar Dominance and the Rise of Nontraditional Reserve Currencies

https://blogs.imf.org/2022/06/01/dollar-dominance-and-the-rise-of-nontraditional-reserve-currencies/

FED Study on US reserve currency status - 220706

https://finance.yahoo.com/news/nothing-horizon-rival-dollar-status-131852935.html

fed-cbdc-us-dollar-reserve-currency-status-220706-finance.yahoo.com-Nothing on Horizon to Rival Dollars Status Fed Study Finds.pdf file

The dollar’s prime international status remains unchallenged, according a study by Federal Reserve Bank of New York staff, despite challenges from sources including geopolitics and technologies like digital currencies.

the study cites some factors that could erode the international use of the dollar over time.

Financial sanctions on Russia following its invasion of Ukraine could encourage de-dollarization by other countries anxious to avoid similar moves against them. And that could fragment the U.S. currency’s global role, the authors wrote.

Cryptocurrencies and central bank digital currencies could eventually supplant the dollar’s cross-border role in payments and investments

China moves to become a reserve currency

The U.S. dollar displaced the pound just as America gained economic superiority over Britain. More than 75% of global transactions have been completed in U.S. dollars since 2008. The dollar also accounts for more than 60% of foreign debt issuance and 59% of global central bank reserves.

Although the dollar’s grip on all these markets and instruments has been gradually declining in recent years, no other currency comes close to these levels. The Chinese renminbi certainly isn’t a viable alternative, but geopolitical and macroeconomic trends support its rise to dominance.

China’s plan

This year, Chinese leaders made it clear that they wanted to boost the renminbi’s profile as a reserve currency. China’s economy and trade flows are large enough to support such a move. However, the country now needs to convince foreign central bankers to start holding the Chinese Yuan (the principal unit of the renminbi) in reserve.

In July, The People's Bank of China announced a collaboration with five nations and the Bank for International Settlements to achieve this. China, along with Indonesia, Malaysia, Hong Kong, Singapore, and Chile would each contribute 15 billion yuan, about $2.2 billion, to the Renminbi Liquidity Arrangement.

Meanwhile, the Chinese Yuan has already become a de facto reserve currency in Russia. Russian leadership turned to China after facing sanctions from the West due to its invasion of Ukraine earlier this year. Now, 17% of Russia’s foreign reserves are denominated in yuan. The yuan is also the third most demanded currency on The Moscow Exchange.

As these partnerships become stronger, the yuan’s status as a reserve currency could be further entrenched.

China digital yuan has good soft launch

https://www.yahoo.com/finance/news/china-digital-currency-transaction-volume-041257245.html

The global impact

https://www.yahoo.com/finance/news/could-china-yuan-replace-u-194500498.html

China’s plan

As these partnerships become stronger, the yuan’s status as a reserve currency could be further entrenched.

The global impact

Economists including Barry Eichengreen of the University of California Berkeley and Camille Macaire of France’s central bank published a paper analyzing the yuan’s potential as a reserve currency. The researchers argue that replacing the dollar isn’t going to be easy or quick. However, they found evidence that yuan reserves were steadily increasing in countries that had tighter trade relations with China.

This growing influence could make the yuan an alternative to the U.S. dollar in a “multipolar” world. In other words, China might chip away at the dollar’s influence over time. The study’s authors said the renminbi’s current position was similar to the U.S. dollar in the 1950s. Based on that comment, it could be just a few decades before the yuan gains parity.

If the forecasts are correct, long-term investors should consider some exposure to yuan-denominated assets and Chinese stocks with significant yuan earnings.

FED MIT OpenCBDC

Boston FED, MIT research on CBDC - 2022

https://news.mit.edu/2022/digital-currency-fed-boston-0203

MIT hamilton github architecture overview

Vipin's Forbes review of Hamilton CBDC project

Project Hamilton completed - 2022

https://www.bostonfed.org/news-and-events/news/2022/12/project-hamilton-boston-fed-mit-complete-central-bank-digital-currency-cbdc-project?utm_source=email-alert&utm_medium=email&utm_campaign=payments&utm_content=article221222

the project focused on better understanding the capabilities and limitations of different technologies that might be used to manage and transfer CBDCs

OpenCBDC is a core processing engine for money that focuses on security, performance, scalability, and flexibility. It provides a codebase that supports 1.84 million transactions per second and settlement – meaning the transaction is completed – of under one second.

https://www.bostonfed.org/publications/one-time-pubs/project-hamilton-phase-1-executive-summary.aspx

By breaking transaction processing into steps like creation, authorization, submission, execution, and storing history, CBDC designers can consider the potential roles for intermediaries at each stage, creating opportunities for innovation.

The main functional difference between our two architectures is that one materializes an ordered history for all transactions, while the other does not. This highlights initial tradeoffs we found between scalability, privacy, and auditability. In the architecture that achieves 1.7M transactions per second, we do not keep a history of transactions nor do we use any cryptographic verification inside the core of the transaction processor to achieve auditability. Doing so in the future would help with security and resiliency but might impact performance.

Research topics may include cryptographic designs for privacy and auditability, programmability and smart contracts, offline payments, secure issuance and redemption, new use cases and access models, techniques for maintaining open access while protecting against denial of service attacks, and new tools for enacting policy.

OpenCBDC Github repo

https://github.com/mit-dci/opencbdc-tx

"Two-phase commit" architecture
- Transaction history is not materialized and only a relative ordering is assigned between directly related transactions.
- Combines two-phase commit (2PC) and conservative two-phase locking (C2PL) to create a system without a single bottlenecked component where peak transaction throughput scales horizontally with the number of nodes.
- Maximum demonstrated throughput ~1.7M transactions per second.
- Geo-replicated latency <1 second.

Hamilton - OpenCBDC Whitepaper - 2022

m Digital Currency and CBDC

Hamilton.Whitepaper-2022-02-02-FINAL2.pdf

My notes

hamilton-cbdc-test-notes1.pdf

hamilton-cbdc-test-notes1.gdoc

Goals

Researchers have proposed that a CBDC could help address public policy objectives such as ensuring public access to central bank money, fostering payment competitiveness and resilience, supporting financial inclusion, and offering a privacy-preserving digital payment method

Phase 1 goal is to investigate the technical feasibility of a high throughput, low latency, and resilient transaction processor that provides flexibility for a range of eventual CBDC design choices

Summary Outputs

Hamilton uses UXTO - unspent transaction output model

Like bitcoin, it tracks fractional transactions in the user wallet.

UTXOs are never modified and must be spent in their entirety. Therefore, Alice who wants to use her $20.00 UTXO to send $4.99 to Bob will create a transaction with two outputs: one $4.99 output meant for Bob and one $15.01 change output meant for Alice herself. In contrast to physical banknotes or coins the UTXO values are not restricted to a fixed set of denominations. Note that it is not required to make change in a system that tracks balances since the default is that the remaining balance stays under the same identifier.

i>>> simplified processing but at the cost of tracking account balances which is common in traditional financial systems

Hamilton, a flexible transaction processor design that supports a range of models for a CBDC and minimizes data storage in the core transaction processor while supporting self-custody or custody provided by intermediaries

i>>> self custody risks to manage

A transaction format and implementation for a UHS which together support modularity and extensibility

v>>> provides more efficient storage, performance given only validators need transaction data access

Two architectures to implement Hamilton: the atomizer architecture which provides a globally ordered history of transactions but is limited in throughput, and the 2PC architecture that scales peak throughput almost linearly with resources but does not provide a globally ordered list of transactions.

v>>> some use cases need ordered transactions and some don’t so both consensus models appear valid

An evaluation of the performance of the two architectures with different types of transaction workloads. Hamilton and the software to evaluate its performance are implemented in OpenCBDC-tx.

v>>> while very limited functionally, the key takeaway was the comparison of ordered commit to 2PC commit in performance

Other blockchain platforms separate validators from ordering, commit as well ( Fabric for one )

Other platforms also leverage hash data sets to reduce storage requirements ( a sample carbon management app for instance )

Other platforms and applications are implementing some version of layer 2 functionality as well

Security model is standard for wallet DLT solutions

Simple, performs well but has the normal risks associated with managing wallets, network transactions

i>>> The concept of wallet recovery, backup etc was not in scope

Design Concepts

Unspent Funds = amount of funds, encumbrance predicate, serial number

The encumbrance predicate P takes two arguments: a transaction tx (to be formally defined later) seeking to spend this utxo, and a witness wit. The predicate returns true if and only if the witness signifies that this spending transaction should be authorized.

We express this distinction between otherwise identical UTXOs through a globally unique serial number sn, the third component in a utxo.

Systems Operations: Mint, Transfer, Redeem UXTO

Transfer is a redeem from the seller and a mint to the buyer

Hamilton only accepts and executes Mint and Redeem operations authorized by the issuer, i.e., only the issuer can mint and redeem funds. Similarly, Hamilton only accepts and executes Transfer operations where encumbrances of each consumed UTXO are satisfied (e.g., all three operations are covered by digital signature authorization).

Operation set provides authenticity, durability, availability

Transaction Validation Steps

Validation involves checking the following:

whether the funds exist to be spent;
whether the spender has provided authorization to spend the funds; and
does the transaction preserve balance of funds.

Consensus Models

Atomizer Ordered Transaction Design

Figure 8 shows a diagram of the components in the atomizer architecture and the data flow between components.

The order of messages during normal transaction execution are described below:

User wallet submits a valid transaction to the sentinel for execution by the system.
Sentinel validates the transaction and responds to the user that the transaction is valid and is now pending execution.
Sentinel converts the transaction to a compact transaction and forwards it to the shards.
Shards check the input UHS IDs are unspent and forward the compact transaction to the atomizer. The shards attach their current block height and the list of input indexes the shard is attesting are unspent to the notification.
Atomizer collects notifications from shards and appends the compact transaction to its current block once a full set of attestations for all transaction input UHS IDs have been received. Once the make block timer has expired, the atomizer seals the current block and broadcasts it to listeners. Shards update their current block height and their set of unspent UHS IDs by deleting UHS IDs spent by transactions in the block and creating newly created UHS IDs. The watchtower updates its cache of UHS IDs to indicate which have been spent and created recently.
User wallet queries the watchtower to determine whether their transaction has been successfully executed.
Watchtower responds to the user wallet to confirm the transaction has succeeded.

2 Phase Commit Transaction Design

Figure 9 shows a diagram of the components in the 2PC architecture and the data flow between components. The order of messages during a single transaction’s successful execution are described below:

User wallet submits a valid transaction to sentinel.
Sentinel converts the transaction to a compact transaction and forwards it to the coordinator.
Coordinator splits input and output UHS IDs to be relevant for each shard and issues a prepare with each UHS ID subset.
Each shard locks the relevant input IDs and reserves output IDs, records data about the transaction locally, and responds to coordinator indicating it was successful.
Coordinator issues a commit to each shard.
Each shard finalizes the transaction by atomically deleting the input IDs, creating the output IDs, and updating local transaction state about the status of the transaction. The shard then responds to coordinator to indicate that the commit was successful
Coordinator issues a discard to each shard informing them that the transaction is now complete and it can forget the relevant transaction state.
Coordinator responds to sentinel indicating that the transaction was successfully executed.
Sentinel responds to user wallet, forwarding success response from coordinator.

Escrow Payment Model on Ethereum

http://escrowmyether.com/

Open Source Ethereum Smart Contract that allows 2 transacting parties, a Buyer and Seller, to transact with their choice of Escrow Agent.

How It Works

When Buyer initializes an escrow transaction, his Ether is locked in the smart contract. Once Buyer confirms the Seller’s obligations are fulfilled, he can release funds to Seller. An Escrow Agent, chosen by the Buyer and Seller oversees the transaction. If a dispute occurs, the Escrow Agent can intervene and refund the Buyer, or release funds to the Seller.

Project Hamilton Phase 2 - 2023

Phase 1 of Project Hamilton used a good, creative approach to engineering comparing an ordered set of blocks to simple 2 phase commits for distributed data. There was excellent performance and a ton of good learning delivered. For Phase 2, given most organizations won't run nodes directly, what is the architecture strategy for high acid transaction performance on simulated payments for a CBDC network where CBDC payments integrate to other networks on payments and assets?

Digital Dollar Project - US CBDC testing

Final Report on Digital Dollar Project CBDC white paper - 2023 - Jennifer Lassiter

https://www.linkedin.com/posts/jbrookslassiter_digital-dollar-project-2023-white-paper-20-activity-7021608827032629248-j3yh?utm_source=share&utm_medium=member_desktop

The Digital Dollar Project's inaugural 2020 white paper urged the United States to accelerate the consideration of a digital dollar through real-world experimentation and proposed a "champion model" of a digital dollar for public consideration. Today we are proud to announce the release of our updated 2023 white paper (https://lnkd.in/gahCjMsp), where we revisit our champion model, provide recommendations to the U.S. government and U.S. private sector and look ahead to the next stage in the evolution of #CBDC development.

Given developments over the past few years, we have an even stronger conviction that the United States has an essential role in setting international standards for digital currencies independent of the decision of whether or not to deploy a U.S. CBDC. The United States must take an active role to ensure that the democratic values of a free society, including financial #privacy and economic #freedom, are enshrined in the future of money.

DDP CBDC Whitepaper 2023

DDP-CBDC-Whitepaper-2.0_2023.pdf link

DDP-CBDC-Whitepaper-2.0_2023.pdf file

Announcement - DTCC Project Lithium looks at CBDC in post-trade settlement

https://www.dtcc.com/news/2022/april/12/dtcc-building-industrys-first-prototype-to-supports-digital-us-currency#:~:text=The%20prototype%2C%20known%20as%20Project,received%20at%20the%20same%20time.

“Project Lithium” prototype will test the ability of U.S. market infrastructure to support a Fed-issued central bank digital currency using a DLT platform

As the U.S. government advances its analysis into the risks and benefits of a Central Bank Digital Currency (CBDC), The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry, today announced the development of the first prototype to explore how a CBDC might operate in the U.S clearing and settlement infrastructure leveraging distributed ledger technology (DLT). The prototype, known as Project Lithium, will measure the benefits of a CBDC and inform the future design of the firm’s clearing and settlement offerings. It will also explore how a CBDC could enable atomic settlement, a conditional settlement that occurs if delivery and payment are both received at the same time.

demonstrate the direct, bilateral settlement of cash tokens between participants in real-time delivery-versus-payment (DVP) settlement. The pilot will also identify how it can leverage DTCC’s robust clearing and settlement capabilities to fully realize the potential benefits of a CBDC, including:

Reduced counterparty risk and trapped liquidity
Increased capital efficiency
A more efficient, automated workflow
The guarantee that cash and securities are delivered
Added transparency to regulators

DDP is facilitating a series of retail and wholesale pilots to evaluate how a central bank-issued currency might work across U.S. financial infrastructure and the American social landscape.

David Treat, Accenture: "The direct exchange of tokenized assets for Central Bank Digital Currency provides a tremendous basis for simplification, efficiency, and a new product and services innovation frontier. We applaud DTCC’s continued leadership and focus.”

With over 45 years of experience, DTCC is the premier post-trade market infrastructure for the global financial services industry. From 21 locations around the world,

In 2021, DTCC’s subsidiaries processed securities transactions valued at nearly U.S. $2.4 quadrillion.

q>>> shouldn't atomic settlement model be defined outside of the payment and asset types? yes

Project Lithium CBDC concepts v1 link

References for Lithium project

Digital Dollar Project

https://digitaldollarproject.org/

CBDC policy maker toolkit

https://www3.weforum.org/docs/WEF_CBDC_Policymaker_Toolkit.pdf

ISSA on Blueprint for CBDC in post-trade settlement

https://issanet.org/content/uploads/2021/12/ISSA-Blueprint-CBDC-in-Post-Trade-Settlement-December-2021-FINAL.pdf

https://finance.yahoo.com/news/clearing-house-cbdc-142923910.html

project Lithium - CBDC settlement

A major clearing house is working on a prototype to explore how a central bank digital currency could be settled if adopted, as the Federal Reserve and Biden administration explore the pros and cons of a CBDC.

The Depository Trust & Clearing Corporation, which clears and settles trades for stocks and bonds, is teaming up with the Digital Dollar Project, a nonprofit led by former U.S. regulators, to test the design of a CBDC and settling delivery and payment at the same time in a project dubbed Project Lithium.

One of the keys to a central bank digital currency is that it’s instantaneous and settled immediately. Project Lithium is looking at using distributed ledger technology to create the best design that allows the most efficient instantaneous settlement.

“A CBDC could improve time and cost efficiencies, provide broader accessibility to central bank money and payments, and all while emulating the features of physical cash in an increasingly digital world,” said Christopher Giancarlo, co-founder and executive chairman of The Digital Dollar Project and former chairman of the Commodities Futures Trading Commission.

The use of printed U.S. currency is on the decline as markets become more digitized and securities are tokenized. Unlike private cryptocurrencies like bitcoin, a CBDC would be issued and backed by the Federal Reserve, just like U.S. paper dollars and coins.

The pilot will also look into how it can use DTCC’s clearing and settlement capabilities to realize the potential benefits of a CBDC, including improving capital efficiency, lowering counter-party risk, transparency for regulators, and guaranteeing cash and securities are delivered to the proper parties.

This comes as the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology’s Digital Currency Initiative have come up with an initial design for a central bank digital currency. The theoretical coin, which was unveiled as the Federal Reserve explores the pros and cons of adopting one, could handle 1.7 million transactions per second, and settle in under two seconds, the Boston Fed and MIT estimated.

The Federal Reserve hasn’t made a decision on whether to adopt a CBDC yet. But Treasury Secretary Janet Yellen said a CBDC could help create a more efficient payment system and could become a form of trusted money comparable to physical cash. She says she’s not sure what conclusions the administration will reach, but that issuing a CBDC would present a “major design and engineering challenge that would require years of development — not months.”

Jennifer Schonberger covers cryptocurrencies and policy for Yahoo Finance.

Compare CBDC Projects

ion

tokenized assets

1 network

Corda DLT

lithium

tokenized assets

2 networks: securities, CBDC

Corda DLT

API P2P

DTM - DTCC Transaction Manager for asset atomic swaps cross network

fnality

tokenized assets

2 networks: securities, multiple stable coins

Corda, Ethereum DLTs

API P2P

DTM - DTCC Transaction Manager for asset atomic swaps cross network

Swift POC

tokenized assets

multiple networks: multiple currencies

multiple DLTs: Quorum, Corda

API Firefly Supernode Gateway Network

Swift Transaction Manager for asset atomic swaps cross network

ISO 20022 paynents messages standard

Business Rules Workflow Engine

Hyperledger Projects focused on CBDC

ebook

https://www.linkedin.com/posts/silvanandermatt_hyperledger-cbdc-ugcPost-6925388782439440384-tFjj?utm_source=linkedin_share&utm_medium=member_desktop_web

https://project.linuxfoundation.org/hyperledger-cbdcs?utm_campaign=Hyperledger%20CBDCs&utm_content=205990013&utm_medium=social&utm_source=linkedin&hss_channel=lcp-10851358

Key Concepts

CBDC concepts & models reviewed - 2024

Macroeconomic modeling of CBDC

https://www.linkedin.com/feed/update/urn:li:activity:7181577148187443201/?updateEntityUrn=urn%3Ali%3Afs_feedUpdate%3A%28V2%2Curn%3Ali%3Aactivity%3A7181577148187443201%29

we review 12 macro-economic papers identifying such effects. We try to match the design assumptions and modelling of these papers with the design announcements of central banks working on CBDC and argue that most of the macro -literature relies on an earlier narrative (unlimited volumes of CBDC, remuneration, etc.) which is inconsistent with most central banks' plans. Moreover, the literature assumes that CBDC would be issued into an otherwise static monetary and financial system (although in reality CBDC is a reaction to ongoing significant changes) and the way it distinguishes CBDC from banknotes is often insufficient.

cbdc-Macroeconomic modelling of CBDC review - 2024.pdf. link

cbdc-Macroeconomic modelling of CBDC review - 2024.pdf. file

A review of the literature reveals
that macroeconomic models of CBDC often start from an early CBDC narrative which is no longer in
line with the one of central banks actually working on CBDC. In particular, the literature often

(i) does not take into account the nature of central banks’ CBDC issuance plans as a “conservative” reaction to
profound technological and preferential shifts in the use of money as a means of payments,
(ii) does not start from design features communicated by central banks, such as no-remuneration, quantity
limits, access restrictions, and automated sweeping functionality linking CBDC wallets with
commercial bank accounts;
(iii) does not explain well enough the difference between CBDC and
banknotes within their macro-economic models, apart from remuneration (which central banks
actually do not foresee); and
(iv) assume that CBDC will lead to a significant increase in the total
holdings of central bank money in the economy, although (i) and (ii) make this unlikely.

Review of Macroeconomic modeling of CBDC

https://www.linkedin.com/posts/pjmcconnell_macro-economic-modelling-of-cbdc-activity-7181770459309318144-cE0O/?utm_source=share&utm_medium=member_desktop

CBDC in Wholesale Markets - 2022

https://www.linkedin.com/pulse/wholesale-cbdc-considerations-digital-assets-sristhi-assudani/

In fact , central bank money has been available in digital form for wholesale transactions between banks for decades.With innovative technologies like DLT , in terms of wholesale markets, settlement systems for financial transactions could be made more efficient in terms of operational costs and use of collateral and liquidity and more secure by implementing wholesale CBDC

Wholesale CBDC refers to the settlement of interbank transfers and related wholesale transactions in central bank reserves.

Work on wholesale CBDC involves stakeholders that already use digital central bank settlement infrastructure today such as banks, central security depository (CSD) and financial market infrastructures such as central counterparty (CCP) and/or securities settlement systems(SSS).

A potentially unintended consequence is that functions currently being performed by a CCP and SSS are transferred to the DLT platform created . However, the legal considerations thrown up by this arrangement are complex .

Interoperable CBDC systems could help to simplify and enhance the performance and accessibility of cross border and cross currency payments.It can also facilitate increased automation through the use of smart contracts .

No alt text provided for this image

In its Annual Economic Report, the Bank for International Settlements announced that it was drawing up a blueprint for a future monetary system grounded in digital representation of CBDCs, noting that such a system could “combine innovation with essential attributes such as safety, stability, accountability, openness, and efficiency”, but also highlighting the structural issues with the current crypto market at present, outlining the inherent risks in its design, suggesting that CBDCs would provide the necessary trust to bring stability.

Bank for International Settlements announced that it was drawing up a blueprint for a future monetary system grounded in digital representation of CBDC

CBDCs can coexist with existing settlement systems and payment mechanisms, and whether private sector providers should be involved in CBDC systems

Wholesale CBDCs are intended for the settlement of interbank transfers and related wholesale transactions, for example to settle payments between financial institutions. They could encompass digital assets or cross-border payments.

CBDC for Security Settlements

Securities are tradable financial assets issued to raise funds from investors.Today, most securities are book entries maintained , at least in part , at a CSD. Some countries have a direct holding system, which means that each beneficial owner has an individual account with the CSD.More common, however, is an indirect holding system, where intermediaries (eg custodians, brokers) hold securities on behalf of their clients with the CSDs.

In the case of securities transactions in most markets, settlement normally occurs two business days after the trade date to allow for a certain number of cash funding and processing steps to occur.

The exchange of cash and securities is normally carried out in a Securities Settlement System (SSS) operated by a Central Securities Depository (CSD) and by corresponding debits and credits of securities throughout the custody chain. Generally, this is done on a Delivery vs Payment (DvP) model. In other words, delivery occurs only if the corresponding payment occurs.

No alt text provided for this image

CBDCs could create efficiency for securities settlement transactions but only to the extent that the trading, clearing and settlement legs of the transaction are operated on the same or interoperable digital platforms, such as DLT platforms.

In this use case, using CBDCs for settling the transaction does not materially change the transaction flow for buyer and seller because it relies on intermediation. However, the perceived benefit would be a much shorter settlement cycle which is close to instantaneous – so called atomic settlement.

Benefits vs Costs for faster settlement with DLT and Tokens

Whilst a reduced settlement cycle lowers the exposure to replacement cost risk, market participants may not necessarily favour shorter settlement cycles, as this would potentially require additional liquidity because a market making institution would not have time to source the cash / securities it needs to settle the transaction.

Using tokens and the underlying DLT may offer a number of benefits. It could reduce the complexity in securities settlement by facilitating simpler, more direct holding systems. It can also facilitate increased automation through the use of smart contracts.

Bank Of International Settlements Publishes Future Monetary System - 2022

https://www.bis.org/publ/arpdf/ar2022e3.pdf

Key takeaways

A burst of creative innovation is under way in money and payments, opening up vistas of a future
digital monetary system that adapts continuously to serve the public interest.
Structural flaws make the crypto universe unsuitable as the basis for a monetary system: it lacks a
stable nominal anchor, while limits to its scalability result in fragmentation. Contrary to the
decentralisation narrative, crypto often relies on unregulated intermediaries that pose financial risks.
A system grounded in central bank money offers a sounder basis for innovation, ensuring that
services are stable and interoperable, domestically and across borders. Such a system can sustain a
virtuous circle of trust and adaptability through network effects.
New capabilities such as programmability, composability and tokenisation are not the preserve of
crypto, but can instead be built on top of central bank digital currencies (CBDCs), fast payment
systems and associated data architectures.

Bank Of International Settlements Publishes A Blueprint For Instant Cross Border Payments Called Nexus article - 2021

https://www.forbes.com/sites/vipinbharathan/2021/07/31/bank-of-international-settlements-publishes-a-blueprint-for-instant-cross-border-payments-called-nexus/?sh=18e451602198

Bank Of International Settlements Nexus is a blueprint for instant cross-border payments

https://docs.bis.org/nexus/

Nexus is a model for connecting multiple national payment systems into a cross-border platform that could enable international payments to happen as quickly as sending a text message.

More than 60 countries already have instant (or "fast") payment systems that allow people to send money to each other within seconds. However, sending money abroad is often still slow and expensive. Connecting these national systems internationally, through Nexus, could improve the speed, cost and transparency of cross-border payments.

This summary report addresses the challenges that would need to be overcome and explains how a bridging platform like Nexus could streamline the process of linking national systems. It makes recommendations for countries that are upgrading or rebuilding their payments technology to prepare for cross-border interoperability.

The accompanying technical documents provide much more detail on the functionality required by payments systems operators, their member banks and service providers, along with proposed message flows and specifications for application programming interfaces (API) that will link different platforms.

The BIS Innovation Hub has developed this blueprint through 30 workshops with instant payment system operators, central banks, and large banks who are active in foreign exchange markets and cross-border payments.

We are now testing and improving on this blueprint through an experimental prototype of Nexus that will connect at least three payment systems – currently, those of Singapore, Malaysia and the euro area. This experiment will process simulated payments but will not handle real money or actual payments from real users.

<<Jim - ReFi - effective, future monetary system need redesigned platforms, regulations, economics and governance.

ReFi - ReimagineFinance ( vs DeFi, CeFi )

ReFi was proposed in 2020 to Reimagine Finance ( vs DeFi - decentralize finance ). Reimagine Finance looks at new solutions, roles using new technologies to evolve the existing financial markets, regulations and infrastructures to make them overall more efficient, effective, secure and accessible for a wider audience.

<<Jim - a good global monetary solution isn't the simple DeFi we know now. It comes from ReFi as a team sport

It supports complex landscapes, relations, services, privacy, security, risks, permissions, identities, regulations, standards, compliance, trust engineering, taxation, FX, liquidity, insurance, custody, credit, asset registration, DvP

<<Jim -the FSN - Financial Services Network: Layered, connected, event-driven workflow services with a diverse economic model for DvP, mcbdc

the concept of interoperable service networks is more than just DLT interoperability. Different than the current internet, this is based on ADT - Automated Digital Trust using digital identities, credentials, roles, permissions, trusts and proofs. This platform supports multiple parties, services, solutions and supports EDW - Event Driven Workflows

<<Jim - Hyperledger Public Sector - Future Financial Conversations - FFC

links with EUBOF, RI, Liechtenstein, Swift, David Treat,

Current ACH payment clearing house

https://en.wikipedia.org/wiki/ACH_Network

ACH Network is the national automated clearing house (ACH) for electronic funds transfers. It processes financial transactions for consumers, businesses, and federal, state, and local governments. ACH processes large volumes of credit and debit transactions in batches. Short for "Automated Clearing House", ACH credit transfers include direct deposit for payroll, Social Security and other benefit payments, tax refunds, and vendor payments. ACH direct debit transfers include consumer payments on insurance premiums, mortgage loans, and other kinds of bills.^[1]

Rules and regulations that govern the ACH network are established by National Automated Clearinghouse Association (NACHA). In 2018, the network processed 23 billion transactions with a total value of $51.2 trillion.^[2] Credit card payments are handled by separate networks.

The Reserve Banks and the Electronic Payments Network (EPN) are the ACH operators.^[3]

ACH uses

Bank treasury management departments sell this service to business and government customers
Business-to-business payments
Direct debit payment of consumer bills such as mortgages, loans, utilities, insurance premiums, rents, and any other regular payment
Direct deposit of payroll, Social Security and other government payments, and tax refunds
E-commerce payments
Federal, state, and local tax payments
Non-immediate transfer of funds between accounts at different financial institutions (when a real-time transfer is required, a wire transfer using a system such as the Federal Reserve's Fedwire is employed instead)

NACHA governs ACH Network

https://en.wikipedia.org/wiki/NACHA

National Automated Clearing House Association (NACHA) manages the development, administration, and governance of the ACH Network, the backbone for the electronic movement of money and data in the United States. It is funded by the financial institutions it governs. The ACH Network serves as a network for direct consumer, business, and government payments, and annually facilitates billions of payments such as direct deposit and direct payment. The ACH Network is governed by the NACHA Operating Rules, a set of rules that guide risk management.^[4]

NACHA is a 501(c)(6) not-for-profit association incorporated in 1974.^{[citation needed]} It represents nearly 11,000 financial institutions by way of eleven regional payments associations^[5] and direct membership. NACHA is not directly involved in the ACH transactions that flow to and from organizations and financial institutions.

Digital Currencies

US Money Supply Measures

https://www.wallstreetmojo.com/money-supply/

the types of money supply measurements and their formulas can be summarized as follows:

M0 = Currency notes + coins + bank reserves

M1 = M0 + demand deposits

M2 = M1 + marketable securities + other less liquid bank deposits

M3 = M2 + money market funds

M4 = M3 + least liquid assets

These measures of money supply usually vary depending on the country. For example, the Federal Reserve usually focuses on M1 and M2 types to monitor the U.S. money supply, whereas the Bank of England measures M4 types too.

Digital Exchanges

Central Bank DC - CBDC

UK Paper on CBDC - 2020

A Central Bank Digital Currency (CBDC) would be an electronic form of central bank money that could be used by households and businesses to make payments. The Bank has not yet made a decision on whether to introduce CBDC, and intends to engage widely with stakeholders on the benefits, risks and practicalities of doing so.

Money and payments are changing

We’re interested in CBDC because this is a period of significant change in money and payments.

Central Bank CDBC Goals

CBDC could present a number of opportunities for the way that the Bank of England achieves its objectives of maintaining monetary and financial stability.

How a CBDC system could work in UK

The discussion paper outlines an illustrative model of CBDC designed to store value and enable UK payments by households and businesses.

Kiffmeister on CBDC retail, wholesale

https://kiffmeister.blogspot.com/2021/08/kiffmeisters-fintech-daily-digest_8.html

Kiffmeisters Fintech Daily Digest 08082021.pdf

China blockchain directions - 2019 - Forbes

https://www.forbes.com/sites/biserdimitrov/2019/11/25/why-china-blockchain-plan-is-winning-and-the-us-should-pay-attention/#4ccc83a35e7e

blockchain will help China build an effective digital currency ( DC ) that can be used as an international reserve currency in a way the yuan ( RMB ) can't operate today

aims to develop a Chinese Central Bank Digital Currency (CBDC) issued by the People’s Bank of China (PBoC), backed by fiat reserves and having some transaction anonymity and extensive encryption services. The goal here is to push this new digital yuan to be a global currency. The reality now is that the yuan (RMB), in its current form, is not accessible and liquid on the international foreign exchange markets

With this new digital RMB, China will be able to offer cross-border payments at a lower cost and with increased speed. Furthermore, using the automation features of smart contracts will provide easier liquidity management and trading efficiency and eventually establish the digital RMB as an upgraded version of the current M0 supply

China's Digital Currency Directions - 2019

http://www.cf40.org.cn/uploads/newsletter/20190803.pdf

China will use a 2 tier system with national banks as tier 2 and the consumer as tier 1

The 2 tier system makes efficient use of existing solutions and lowers overall system risk and competition from the central bank

China open to new technologies, solutions on the financial side - not locking on to 1 specific solution stack

In order to ensure that CBDC will not be excessively issued, commercial institutions would be asked topay 100% reserves to the central bank. CBDC held by the public is still a kind of liability of the central bank, and is an unlimited fiat currency guaranteed by central bank's credit. The two-tier operating system will not change the existing money issuing system and the dual-account structure, and will not compete with the deposit currency of commercial banks. The digital fiat currency will neither change the current dual structure of exchange, nor increase the dependence of commercial banks on the interbank market. Meanwhile, it does not affect commercial banks’ ability to issue bonds, and there is no financial disintermediation

2 tier solution reuses existing EP - electronic payment systems - to consumers

Decoupling CBDC from tier 1 consumer usage allows for easier DC technology upgrades

CBDC issues digital currency and maintains control of currency float

the 2 tier CBDC system avoids financial disintermediation and provides support for RMB currency

the interbank payment system is efficient and getting better so no need to replace it

the existing M0 (banknotes and coins) are issued at a higher cost, are easy to be anonymously forged, and have risks such as money laundering and terrorist financing.

DC/EP is designed to maintain the attributes and main features of cash and also meet the portable and anonymous needs and thus is a better instrument to replace cash

As CBDC is an alternative to M0, no interest is paid on this avoiding financial disintermediation, inflation expectations, and a big impact on the existing real economy. Of course, CBDC should comply with all current regulations on cash management, anti-money laundering, and counter-terrorism financing, and large and suspicious CBDC transactions should be reported to PBOC

n order to avoid the impact of squeezing out deposits and the pro-cyclical effects in arbitrage and stress environments when CBDC is used in small retail Tightly Coupled AccountLoosely Coupled Account Traditional e-payment scenarios, transaction limits and balance limits can be set according to different levels of wallets. In addition, some exchange costs and frictions can be added to avoid procyclical conditions in the stress environment.

CBDC should function in the same role as M0 ( currency today )

CBDC is still a currency with the nature of unlimited legal tender and an alternative to M0. Its monetary function (a mediumof exchange, a store of value, and a unit of account) determines that if it is loaded with too many smart contracts or smart contracts beyond its monetary function, the currency will be torn. Moreover, it may degenerate into a value instrument and the degree of usability will be reduced, so as to produce an adverse impact on the internationalization of renminbi. CBDC will not use smart contracts beyond base monetary functions to preserve use of CBDC as a currency first.

Tightly vs Loosely coupled payment system comparison

Items to work on

Balance between account anonymity and AML, Terrorist financing, Tax evasion

CBDC is only M0 substitution with the banks

CBDC is designed to substitute M0 instead of M1 and M2, because M1 and M2 have now been electronized and digitized. M1 and M2 are themselves based on the existing commercial bank account system and there is no need to digitize them with digital currency.

Note:

M0 and M1, for example, are also called narrow money and include coins and notes that are in circulation and other money equivalents that can be converted easily to cash. M2 includes M1 and, in addition, short-term time deposits in banks and certain money market funds. M3 includes M2 in addition to long-term deposits.

ECB releases paper on EU CBDC

https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2662~fa8429a967.en.pdf?88b4fb9730f2df55b49ca612d24b3a18

ecb-220514-paper-The digital economy privacy and CBDC-ecb.wp2662_fa8429a967.en.pdf file

We study a model of financial intermediation, payment choice, and privacy in the digital economy.

Cash preserves anonymity but cannot be used for more efficient online transactions.
By contrast, bank deposits can be used online but do not preserve anonymity. Banks use the information contained in deposit flows to extract rents from merchants in need of financing.
Payment tokens issued by digital platforms allow merchants to hide from banks but enable platforms to stifle competition.
An independent digital payment instrument (a CBDC) that allows agents to share their payment data with selected parties can overcome all frictions and achieves the efficient allocation.

developing a model of financial intermediation, payment choice, and privacy in the digital economy.

we show that tokens can also help platforms to fend off potential entrants by keeping merchants locked into a “walled garden”

Primary focus use case is complex:

a seller borrows money to buy goods
seller buys goods and lists for sale
buyer buys some goods from seller using CBDC for payment

??? >> "CBDC with data‐sharing also prevents anti‐competitive practices by platforms, further raising efficiency"

"While a CBDC with anonymity is preferable to traditional electronic payments such as bank deposits, it may become supplanted by payment tokens issued by large technology firms. This risk would be particularly tangible if those platforms compete with banks in the market for financial services. However, an optionality for data‐sharing features may result in a widespread CBDC adoption."

CBDC key >> "public digital money has a comparative advantage at providing privacy"

"<this paper creates> model of financial intermediation to analyze the interconnections of payments and privacy in the context of the digital economy"

"cash transactions are not observable, so the bank has to make inference based on reported sales and can elicit information through contractual arrangements"

"sellers opt for online distribution and settlement with bank deposits if the benefits of more efficient matching outweigh the costs of freely revealing their type to the bank."

"When sellers can use a CBDC to trade online, the bank can only learn the type by leaving some rents to online sellers."

"We then extend the model to include a digital platform, which provides a settlement token and competes with the bank for continuation loans to sellers."

By contrast, with either CBDC or deposits, only the bank is informed and acts as a monopolist. Accordingly, sellers opt for tokens.

"we enrich the CBDC with a data-sharing functionality. This enables sellers to reveal their type for free to both the bank and the platform. Importantly, they can do so after repaying their initial bank loan"

"we show that a CBDC with a data-sharing feature also enhances competition among platforms by preventing the incumbent from acting as “walled garden”. Accordingly, sellers are able to reap the additional efficiency gains associated with entrant platforms."

European Opposition to CBDC

https://cointelegraph.com/news/ecb-lays-out-anonymous-digital-euro-as-public-opposes-slavecoins

cbdc-european-opposition-220514-cointelegraph.com-ECB lays out anonymous digital euro as public opposes slavecoins.pdf file

ECB lays out ‘anonymous’ digital euro as public opposes ‘slavecoins’

The ECB drops another working paper on the digital euro, causing more outrage from Europeans opposing a central bank digital currency.

The European Central Bank (ECB) continues pushing its central bank digital currency (CBDC) project despite Europeans apparently not feeling too positive about a digital euro.

Issued on May 13, the working paper aims to study issues like financial intermediation, payment choices and privacy in the digital economy, providing a large number of related algebra-based conclusions.

According to the ECB, one of the main problems of cash is that it cannot be used for more efficient online transitions while it still preserves anonymity. In contrast, bank deposits can be used online but do not provide enough anonymity.

Finally, digital currencies issued by tech platforms “allow merchants to hide from banks but enable platforms to stifle competition,” the ECB wrote, adding:

“An independent digital payment instrument — a CBDC — that allows agents to share their payment data with selected parties can overcome all frictions. [...] The introduction of a CBDC with anonymity enables merchants to prevent banks from extracting information from payment flows.”

Europeans are not quite optimistic about any CBDC. According to public feedback from another digital euro consultation, the majority of Europeans are against the adoption of a CBDC in the European Union.

the consultation has amassed 14,110 feedback entries at the time of writing, with many opposing the very idea of a central bank-controlled digital currency and associated lack of user privacy

Vipin on Monetary Impacts of CBDC

https://medium.com/@vipinsun/central-bank-digital-currency-1af7e072e660

cbdc-article-vipin-2020-medium.com-Central Bank Digital Currency.pdf

My thoughts on CBDC

------------------
vipin on money

https://medium.com/@vipinsun/central-bank-digital-currency-1af7e072e660

cbdc goals, solutions probably won't be the same in different countries
money is a deferred proxy for exchange of goods and services
value store, value transfer
battle over privacy, confidentiality on DC options - KYC should be req.
need strong governance on CBDC - a real "Constitution" with similar change controls on how CBDC is managed
CBDC should align with sovereign entities
CBDC can still be managed across countries the same as cash flows today
can some form of secure p2p payment with CBDC work? probably
will it become the primary way money moves? probably not

uses
wholesale, retail, p2p payments
payoff credit, replaces debit card
if CBDC pegged to fiat, redemption not a significant issue normally

issues
The bank may not be able to use CBDC as a source of reserve funds. Created money in deposit accounts as explained above can be taken out as CBDC, so bank reserves will fall. This fall in reserves and a challenge to the strength of banks will come about as CBDC is easier to handle than cash. The whole mechanism of credit and money creation as outlined will be in jeopardy. This is one of the biggest problems to be solved.

are anonymous transactions a good thing? not needed
more important where citizens have a government controlling fund access
could be an issue here on garnishments etc more than withholding

if you have access to a mobile device you are not unbanked or anonymous
physical or virtual wallets? virtual multi-level wallets

options on how interest could be paid to CBDC holders

wallets
Investment in a secure, stable, well governed, regulated and recoverable digital wallet will be one of the most important elements of the system. Digital wallets will be the primary applications through which people interact with CBDC

consensys CBDC model
There have been some concrete proposals by companies like Consensys for the design of a CBDC ecosystem as a layered private Ethereum based system. No surprises there as Consensys is an Ethereum shop. It calls for a value based approach with a wide set of intermediaries (Bouchaud et. al (2020)). Wallets are on Layer 4.

Conclusions
CBDC and payment systems are 2 related solutions
Current payments systems are expensive to run
reasonable on security, privacy, speed for most scenarios
CBDC might support lower payment system costs, faster settlements
CBDC should be based on KYC identities, accounts for transfers
CBDC will should be governed by each sovereign nation
Nations won't agree fully on how to manage money, different values
Nations only have to agree on how transfers are done
CBDC could change concept of reserve currencies, legal tender
other nations could authorize a foreign currency as legal tender

Stablecoins

many types

How Stablecoins are pegged to Fiat currencies

https://www.linkedin.com/posts/anthonyjjday_blockchain-technology-innovation-activity-6931860818347094017-Z8uB?utm_source=linkedin_share&utm_medium=member_desktop_web

Ever wondered how Stablecoins (tokens on a Blockchain representing a fixed FIAT value... most of the time) are structured? Well, here are some helpful examples for my Basic Blockers...

With most of last week's news focused on the tragic decline of the UST stablecoin and Luna cryptocurrency, many have been conducting frantic research to understand more. Algorithmic stablecoins are just one model in Web3, and as we have seen algorithms can be fallible if the tokenomics are not set up to account for certain (albeit highly unlikely) forms of attack.

This diagram helps to give a visual representation of how different currencies and stablecoins are constructed and backed, including:

- The Fed (AKA the United States Federal Bank and the actual dollar)
- Bank of America (AKA how a regular retail bank is structured)
- Collateralised stablecoins (e.g. USDC, backed 1:1 with non-crypto assets)
- Crypto-backed stablecoins (e.g. Fei, MakerDAO, Angle, Frax)

Whether we will ever find out who was responsible for taking down UST (Terra) we may never know, but given that public Blockchain transactions are transparent and auditable, hopefully someone in the community can shed some light over time.

What's your take on the downfall of UST: who do you think was responsible? What does this mean for Web3 and the future of other Stablecoins?

No alternative text description for this image

Stablecoins not gaining ground in 2023

As real interest rates remain higher, longer holding crypto has higher opportunity cost

https://www.linkedin.com/posts/tony-mclaughlin-7b627a3_on-par-a-money-view-of-stablecoins-activity-7133804084624543745-tqD1?utm_source=share&utm_medium=member_desktop

Tony on the stablecoins paper view of RLN

"Meanwhile, it does appear that the major global banks and central banks are on track to mount their own stablecoin system, in the form of tokenized deposits that are ultimately promises to pay CBDC (Central Bank Digital Currency). This for example is the underlying concept of the Regulated Liability Network."

A money view of Stablecoins paper

https://www.bis.org/publ/work1146.pdf

BIS-stablecoins-On par- A Money View of stablecoins.pdf link

BIS-stablecoins-On par- A Money View of stablecoins.pdf file

This paper presents a money view analysis of the recent crypto innovation of stablecoins, which have seen a remarkable rise and more recently some spectacular collapses. By analogizing onchain with offshore, and developing an extended analogy of stablecoins with Eurodollars, we reveal the primitive character of the existing on-chain liquidity mechanism which supports the promise of par settlement by existing on-chain stablecoin models. Liquidity, not solvency, is the issue confronted by par settlement.

Analogy with the Eurodollar system naturally leads us to inquire about the operation of forward
markets in stablecoins, where pressures on par that come from deficits at the settlement might
temporarily be absorbed. And we wonder further about access to or exclusion from lender of last
resort facilities, i.e. about where stablecoins fit in the hierarchy of international money.

Regulators have started from the latter question—central banks were probably surprised to find
that lender of last resort support for Silicon Valley Bank in March 2023 was also in effect lender of
last resort for USDC, a stablecoin that held substantial deposits at SVB as its purportedly liquid
reserve

DeFi protocols remain specialized and speculative instruments.11F

Liquidity challenges for stablecoins

Liquidity comes in three forms: monetary liquidity, funding liquidity, and market liquidity.
Monetary liquidity is about holding of actual monetary reserves, which in the crypto world typically
takes the form of deposits in an off-chain bank. (Note that this means stablecoins are typically
lower in the monetary hierarchy than deposit accounts, which themselves are lower than central
bank liabilities.) Funding liquidity is about the ability to borrow which, as we have seen, is very
limited not only in practice but also in principle, because of the deep crypto commitment to
developing a trustless system that eschews credit. And finally, market liquidity is about the ability
to convert asset holdings into money, i.e. to sell them. The important point is that, for lack of
funding liquidity, it is market liquidity on which current stablecoins depend. That is the reason for
the unremitting emphasis on solvency.

On-chain liquidity risks

The
question is whether, in the event of a run, the assets of the stablecoin issuer are adequate to
liquidate its stablecoin liabilities. For any individual stablecoin issuer, perhaps it is okay to assume
that reserve assets can always be sold into liquid markets, so that liquidation price is close to

value. Par, however, is not about individual issuers, but rather the net settlement between on-
chain and off-chain. The ability of the on-chain system to meet a deficit at the settlement depends

on its ability to sell assets to the off-chain system. This is very different from the offshore system,
which is organized around funding liquidity. By comparison on-chain is much less elastic, much
more fragile.

stablecoin exchanges require high liquidity reserves to operate well

An on-chain solution is provided by so-called bridge protocols. Generically, these are linked
algorithms running on two different distributed ledgers. A user can instruct the bridge protocol
to lock tokens on one ledger, releasing tokens of an equivalent value on the other ledger. From
the user’s perspective, the effect is similar to a foreign-exchange transaction, moving value from
one payment area to another payment area. DeFi technology allows the protocol to execute
without discretionary intervention. Behind the scenes, however, such protocols have mostly
operated using (very) large token balances. This consumes a lot of capital, and is difficult to
imagine operating smoothly at scale. One such protocol is Poly Network, which offers the facility
to shift BUSD into USDC, among others, as depicted in Graph 6. It is important to note, however,
that the facility works by holding large reserves of both. That is, liquidity rears its ugly head again.

Patrick McConnell on the stablecoins paper

Yep Excellent paper

"By analogizing on-chain with offshore, and developing an extended analogy of stablecoins with Eurodollars, we reveal the primitive character of the existing on-chain liquidity mechanism which supports the promise of par settlement by existing on-chain stablecoin models. Liquidity, not solvency, is the issue confronted by par settlement."

"Primitive","liquidity not solvency"?

Potential Value Opportunities

CBDC scenarios

payments

remittances

DvP

PvP

cbdc exchanges and conversions

settlement - RTGS for bilateral trades vs margin trades

CBDC models

sovereign currencies - digital dollar etc

regional currencies - digital euro

retail currencies - China renmibi

wholesale currencies

ecash vs cbdc

cbdc vs stable coins

Potential Challenges

AML, SARs, AI and Bank Accounts are a Privilege

https://www.yahoo.com/news/keep-bank-closing-accounts-164006166.html

Banks are under pressure in the US and Europe

ALL Banks - not just traditional ones

They have to comply with increasingly complex AML laws ( Anti-Money Laundering )

AML laws have a system of sanctions that change dynamically ( the laws are more static )

One day you're fine, the next a sanction may hit some or all of your assets for something you or who you're associated with

Banks have to be profitable to survive in a competitive world keeping service fees from rising

Automation and AI are ways to keep operating costs down

AML sanctions are increasingly enforced by automated data management and AI algorithms looking for suspicious transactions

The suspicious transactions trigger SARS reports automatically ( Suspicious Activity Reporting System )

In theory, SARS reports should be manually investigated first by the bank and then maybe FINCEN in the US

In reality, if there a lot of SARS reports building up, to avoid compliance issues, it's possible banks can cut the backlog by closing accounts with a SARS report even if there isn't a real problem

Yes these SARS reports and the related investigations and actions help cut money laundering, reduce fraud

At the same time, normal people who aren't committing crimes can trigger SARS reports that may result in an account closing

So what's the answer to do better on money laundering and fraud enforcement while reducing the impact of account closings on people who aren't guilty of either??

bank-account-closings-for-SARS-AML-How to Keep Your Bank From Closing All Your Accounts.pdf link

bank-account-closings-for-SARS-AML-How to Keep Your Bank From Closing All Your Accounts.pdf file

Are Stablecoins Stable ?

https://www.linkedin.com/posts/chrisngoi_primary-and-secondary-markets-for-stablecoins-ugcPost-7167366755940491264-kQT2?utm_source=share&utm_medium=member_desktop

fed-240223-Primary and Secondary Markets for Stablecoins-paper.pdf. link

Much analysis has interrogated the inherent stability (or instability) of different stablecoin designs, though each successive market event reveals new and distinct risks to different stablecoins.

This paper analyzes a number of these factors, with an emphasis on distinguishing between primary and secondary market dynamics during a stablecoin crisis

We begin our analysis with an overview of the ways in which stablecoins are collateralized, issued on primary markets, and traded on secondary markets. We then turn to a case study of the March 2023 stablecoin market events, which shook crypto-asset markets. We discuss four stablecoins of interest, focusing on their different technical designs, and provide a detailed account of dynamics on primary points of issuance and secondary markets. From this analysis, we derive several general insights about the nature of stablecoin markets during periods of stress.

How stablecoins are backed by collaterized assets

Stablecoins can generally be grouped into three categories according to how they are collateralized and issued: fiat-backed stablecoins, crypto-collateralized stablecoins, and algorithmic (or uncollateralized) stablecoins.

Algorithmic stablecoins are not a value store

Algorithmic stablecoins are, in many ways, the most difficult category to define. They tend to be under- or entirely uncollateralized by design and instead use smart contracts and various incentive structures to maintain the peg by adjusting the supply of the stablecoin according to demand (

Can stablecoins work as "value transfer" or "value store" tools?

First see how they are collateralized by assets.

Stablecoins in primary and secondary markets

The issuance and collateral design of stablecoins is the way a stablecoin issuer, adjusting collateral or supply as needed, assures consumers that each stablecoin is worth a dollar. However, secondary markets actually price the assets and help enable a stablecoin to maintain its dollar peg.

Fiat-backed stablecoin issuers tend to only mint and burn new stablecoins with institutional customers

Secondary markets for stablecoins

Decentralized exchanges and liquidity pools offer additional opportunities for arbitrage trading, such as stablecoin-specific automated market makers.

Secondary markets for stablecoins provide the default source of pricing data for market observers.

USDC stablecoin example

USDC is a fiat-backed stablecoin issued by Circle. Like many fiat-backed stablecoins, only direct customers of Circle (cleared through an application process) have access to the primary market for USDC, and those customers tend to be businesses such as crypto-asset exchanges, financial technology companies, and institutional traders. Most retail users instead purchase their stablecoins from intermediaries and can buy and sell them on secondary markets such as centralized and decentralized exchanges.

During crisis, USDC trading paused ( not a liquid asset anymore )

Exchanges that usually offered one-forone trades between USDC and other stablecoins or USDC and the dollar to their retail customers followed by pausing such offers, further cutting off outflows from secondary market participants looking to sell USDC (Huang, Miao, and Ostroff 2023).

Findings

Our empirical analysis suggests that decentralized and centralized exchanges operate differently during times of crisis, though they price stablecoins very similarly. This leaves open several questions: To what extent are mechanical differences between automated market makers and limited order books, availability of fiat trading pairs, or other factors responsible for such differences? Which secondary markets are more reliable indicators of market stresses on stablecoins?

Jim thoughts >>

Very useful study on the impacts of market crisis on stablecoin values identifying differences in risk by coin for primary and secondary markets. It's also worth looking at Moody's Analytics on stablecoins to see how often they are depegged to the assets --

https://www.moodysanalytics.com/articles/2023/moody_launches_new_digital_asset_monitor_to_track_risk#:~:text=Moody's%20also%20assesses%20the%20stablecoins%20against%20an%20overall%20risk%20and%20transparency%20index.

Offline CBDC payments

cbdc-offline-payments-more-2023.pdf. link

cbdc-offline-payments-more-2023.pdf file

Providing offline payments with CBDC is an important requirement for many central banks, but its implementation is complex and involves a number of technology, security and operational considerations that need to be planned and designed for at the earliest possible stages. These considerations have implications on decisions related to policy, ecosystem roles and responsibilities, design, architecture, security, technology, investment, ongoing operations, change management and risk management. The research for this handbook has found there is no one-size-fits-all solution,

This handbook provides some of the main reasons and usage scenarios for offline payments; a map and an explanation of the technology components; and a set of design criteria for risk management, privacy, inclusion and resilience.

Policy and Design Issues

• Providing offline payments functionality with CBDC could be a way for a central bank to achieve a broad set of public policy objectives, including those related to its mandate. A central bank should identify how offline payments with CBDC could support relevant policy objectives, such as inclusion or payment system resilience.

• A central bank should also consider its risk tolerance and approach to risk management, how to handle cases of lost value, and the balance between privacy objectives and those for AML/CFT.

• The roles and responsibilities of the actors involved in a CBDC payments ecosystem in supporting offline payments should be clearly defined. Collaboration between the public and private sector would be necessary.

Technology considerations

• if supporting offline payment, due to possible security and operational implications. This may require adaptation of enterprise risk management to new threats and risks.

• Offline payment solutions can operate in three modes,1 which refer to how the solution would connect online if and when required. This could have implications for how risks are managed, the level and type of privacy provided, and the resilience conditions that are supported.

• Offline payment solutions can be based on tamper-resistant hardware, software or a combination of both hardware and software (hybrid).

• In some countries, software-based solutions will be more appropriate than hardware-based ones, or vice versa. The type of solution and the mode in which it operates will determine its suitability in meeting various objectives for providing offline payments with CBDC. There is no one-size-fits-all solution.

• Where possible, existing technologies and infrastructure should be leveraged to enable offline payments with CBDC; however, any solution should adapt to new requirements and leverage new technologies over time.

User Experience

• Everyday users will demand solutions that are reliable, easy to use, convenient, and widely accepted and that provide a seamless user experience both online and offline.

Remember when the US Dollar was THE reserve currency?

all US administrations gave lip service to the goal of the dollar as the reserver currency then did everything to kill it

The Biden administration may have done more than any other to kill it not understanding how expectations and consequences work in trade and financial systems

Russia takes a crack at a devaluation of the dollar with a lower gold standard

Russia goes to Gold standard to hit Dollar

It's official! Russian Central Bank announces that the ruble is tied to gold! 5000 rubles per gram.
The Central Bank of Russia has officially announced that the Russian ruble will be tied to gold as of March 28, 2022, The rate is 5,000 rubles per gram of gold ingots.
There are 28 grams in each ounce. 28 grams for 5,000 rubles per gram is 140,000 rubles.
Are you following me this far?
The conversion rate of rubles into US dollar is 100 rubles, 90 pounds, for each US dollar.
If the rubles are tied to gold at 5000 rubles per gram, and there are 28 grams per ounce, which means that an ounce of gold would cost 140,000 rubles, then the conversion into US dollars means that gold costs 1400 dollars per ounce when used the rubles, instead of 1,928 dollars by ounce using the dollars.
Russia just wiped out about 30 percent (30%) of the US dollar worldwide when it comes to gold ingots.
People all over the world are literally throwing their money on the ruble and throwing away dollars and euros to do it.
What Russia just did is the financial equivalent of detonating a nuclear bomb.
FYI, the last guy on this planet to try to support a currency with gold was Muammar Quadaffi of Libya.
NATO entered Libya, bombed it to death, until the Libyan people took Quadaffi on the street, beat him with blood and planted a bullet in their head.
As of now, 10:39 PM EDT, I suspect bankers around the world are on the phone between themselves and the heads of state, instructing them that what Russia has done will totally destroy both the US dollar and the euro, and those bankers of Frog to the heads of state that world war 3 must start immediately.
Let me explain why.
Today, the Central Bank of Russia anchored the ruble to gold.
Last week, Russia said it would sell only OIL and GAS in . . . . Ruble!
This means that Russian oil and gas are anchored in gold with rubles like gold proxy.
EFFECT: Europe (which needs Russian gas and oil) will now have to buy rubles from Putin using gold, or pay for oil and gas with gold itself.
Currently, the FOREX rate for Rubli to Dollari is around 100:1
BUT... with 5,000 Rubli now equivalent to a gram of Gold, and oil being priced directly into Gold, we will see a MASSIVE price disturbance in the FOREX markets, in terms of how much Gold a Dollar can still buy.
Foreign countries holding our dollar debt notes as a reserve will see an immediate and much less use for them and want to start downloading them in favor of something more stable; something that holds its value.
Basically, any currency anchored in gold will fit into the account. which means countries like that - like Japan - will start unloading their dollar debt as soon as possible - are not going to go down with the ship! They'll move to more stable values like... The Ruble.
This will have a DE-flationistic effect on the Rublo, making it more precious with time.
This also means that Putin can re-find the ruble whenever he wants, at 500, or 50, or 10. He just keeps getting more precious to him.
The immediate result is that all those foreign countries dumping their dollar reserves will make all those excess dollars start going home, triggering a worse hyper-inflation than we already have in the USA.
ladies and gentlemen please click the link below to subscribe to our youtube channel, so as to take part in our weekly discussion about African / Global policies that affects Africa.
https://youtube.com/channel/UCbdXkQAmRfoXcMdUsvPyxKA

China moves to the Yuan from the US Dollar as reserve currency on trade agreements

Saudi Arabia sells oil to China for Yuan

https://finance.yahoo.com/news/china-calls-u-dollar-dominance-150000800.html

The first shipments of Russian coal and crude oil, paid for in yuan, will arrive in China in April and May, respectively. Chinese state media used the opportunity to denigrate the United States, claiming that the international status of the U.S. dollar is “at risk.” However, financial expert Albert Song believes that it will not affect the U.S. dollar’s status as the leading global reserve currency.

Fenwei Energy Information Service Co., China’s leading information and service provider to the coal and coke industries, revealed that several Chinese companies purchased Russian coal in Chinese currency in March, and the first shipment would be made in April. This is also the first shipment of Russian commodities paid in yuan to arrive in China after Russia was sanctioned by Western countries.

China moves the world away from the US dollar reserve currency - 220915

https://www.yahoo.com/finance/news/china-russia-move-disrupt-dollar-220000247.html

This idea again resurfaced following the latest international sanctions imposed on Russia following its invasion of Ukraine. Almost as soon as they were introduced, Russian President Vladimir Putin signed a decree requiring buyers of Russian gas in the European Union (EU) to pay in rubles via a new currency conversion mechanism or risk having supplies suspended. This threat nearly succeeded in exploiting existing fault lines running through the U.S.-led NATO alliance, as major EU consumers of Russian gas scrambled to work out how to appease Putin’s ruble payment demands, without overtly breaking any sanctions

<<Jim Mason - on 2 key metrics the US government needs to focus on

There are 2 key metrics I've followed for 20 years that everyone in Federal Government does not focus on.

Financial health for individuals = net median per capita income growth. Most years that embarrasses the government in power.
US reserve currency status is critical for a healthy US economy.
The second key sentiment metric for the US dollar as a reserve currency. This is a trend of the net monthly purchases of US debt by foreign governments.

There isn't anyone elected to office I know of that understands the long-term risks and health to the US economy when the government uses the US dollar for political purposes.

Candidate Solutions

Fed Now interbank transfer service ( 2023 ) Wholesale Banking

The initial FedNow Service launch will include:

Core clearing and settlement capabilities to support a range of transaction types and use cases
Use of the widely accepted ISO^® 20022 standard and other industry best practices to support interoperability
Features that will support flexible adoption, including support for the use of service providers and correspondents and an option to enroll as a “receive-only” participant
Value-added features including request-for-payment capability and tools to support participants in their handling of payment inquiries, reconcilements and certain exceptions
Features to enhance experience for financial institutions by broadcasting participant availability to support their transition to 24x7x365 operations, a user interface to support data needs and the ability to have access to balance information on weekends
Features to support payment integrity and data security and tools to help financial institutions combat fraud, such as a transaction value limit and reporting features
A liquidity-management tool that will allow participants and others to transfer funds to each other to support the liquidity needs of instant payments

After the initial service launch, we hope to offer additional features related to fraud prevention, error resolution and case management. We will continue to explore other features, including potential support for person-to-person payments that use the alias of a receiver

FedNow Payments Flow

FedNow - July 2023 - Banking Is Going 24/7. Mind the Risks

https://www.bloomberg.com/opinion/articles/2023-07-07/fednow-is-coming-here-are-some-of-the-risks

Before Fednow

Although money-moving apps and websites are available night and day, most transfers are still processed on networks that operate during business hours only. So while a payment can be made within seconds, the recipient will need to wait hours or days for the funds if it’s after closing time or on a weekend.

After Fednow

FedNow Service, which will offer banks a way to make instant domestic payments available to their customers — at any time of day and any day of the year.

Instant Payment Services

Instant payments create higher liquidity risks for banks

Instant payments won’t cause liquidity risks immediately. Participants in FedNow — like those already using a similar privately owned network called RTP — will have significant leeway to set withdrawal limits on individual accounts. Many lenders connected to RTP restrict their customers’ instant transactions to “receive only.” What’s more, risk managers have cracked down since the recent failures, leaving banks with significantly stronger liquidity.

Instant payment services add more risks for people

the Zelle service controlled by the biggest US banks. Unlike with credit cards, payments over Zelle — and instant services like FedNow and RTP — generally aren’t revocable or refundable.

Consumers need better education on instant payment risks

As for user risks, the Consumer Financial Protection Bureau is leading talks to find ways to reimburse victims of fraud over electronic payment services like Zelle, and banks are trying to educate customers about common scams. Monitoring how consumers respond to these tools and staying on top of novel threats should be a priority.

Fed and banks need to run 24 x 7 to manage liquidity risk but aren't prepared for that now

Zelle

https://www.investopedia.com/what-is-zelle-7097991

Unlike competitors such as Venmo, PayPal, and Cash App, Zelle does not charge an extra fee for an instant transfer.

KEY TAKEAWAYS

Zelle is a money transfer app that allows you to send money to family or friends quickly.
More than 1,700 banks include Zelle in their banking app.
Unlike many money transfer apps, Zelle does not charge a fee for instant transfers.
Zelle transfers are generally secure, but the app does carry risks, including the risk of glitches at banks that can affect money transfers.

How Zelle Works

Zelle is a money transfer app that helps you quickly send money to family or friends through your mobile device. More than 1,700 banking apps already offer Zelle.1

You enroll through the Zelle app or through your banking app, if it offers Zelle’s service. Then, you can find a person whom you want to pay by entering their email address or phone number. Finally, choose the amount of money you want to send, and the recipient will get instructions on how to receive the payment quickly.

Zelle is owned by Early Warning Services, a financial technology (fintech) owned by seven major banks: Bank of America, Capital One, JPMorgan Chase, PNC Bank, Truist, U.S. Bank, and Wells Fargo.2 It launched in 2017 to compete with the likes of PayPal and Venmo, both of which are owned by PayPal Holdings Inc. (PYPL), and Cash App, owned by Block Inc. (SQ).3

Is Zelle safer than Venmo?

Zelle and Venmo are both generally safe money transfer apps, as they use authentication, encryption, and monitoring features to make transfers secure.69

What are the disadvantages of using Zelle?

Disadvantages of using Zelle include the potential for fraud or theft.10 Users can also face difficulties, such as not receiving their funds, if the app or banks experience technical problems. Outages can affect money transfers.7
You also cannot cancel a payment that’s received by another user, and transfers occur quickly.11
Banks may limit the amount of money you can send through Zelle ( my banks have a $500 limit per transaction for example )

Venmo

https://www.investopedia.com/articles/personal-finance/032415/how-safe-venmo-and-why-it-free.asp#:~:text=As%20noted%2C%20a%20simple%20Venmo,the%20sender%20a%203%25%20fee.

Venmo started out as a free peer-to-peer (P2P) payment app available for iPhones and Android phones. That service is still free, as is using Venmo to pay participating merchants, who now number in the millions. You must be 18 or older to have a Venmo account.

Some other Venmo services carry a fee, however. Payments that go through a credit card account rather than a linked bank account or the user's Venmo account incur a 3% fee. There are other miscellaneous fees for transferring money instantly from Venmo to a bank and for depositing checks.1 Venmo also issues a debit card and a credit card that are accepted at a growing list of local and national retailers. Those products also carry fees.

KEY TAKEAWAYS

Venmo got its start as a peer-to-peer payment platform with social network features.2
That original Venmo peer-to-peer function remains free (as long as you don't use a credit card to pay).
Venmo can now be used to pay millions of retailers through the app or through a Venmo-branded debit card or credit card.
Some features such as instant money transfer or depositing checks carry fees.
Merchants who accept Venmo pay the bulk of Venmo's fees.3
Venmo. "Business Profile Fees."

How Does Venmo Work?

After downloading the Venmo app from the Apple Store or the Google Play store, users are given options to link their Venmo accounts to a credit card, debit card, or checking account. Once enrolled, a Venmo user can instantly begin exchanging funds with any other Venmo user.4

For peer-to-peer transactions, Venmo is a middleman between the accounts of two users conducting a transaction. For example, say Addison agrees to sell Kya a bracelet for $50. Kya sends Addison the funds via Venmo, which then raises the balance in Addison's Venmo account by $50 while reducing Kya's Venmo balance by the same amount. Neither pays a fee.

In this way, a Venmo balance is essentially a virtual ledger that represents funds changing hands, within the Venmo platform. Until Venmo transfers the money into the recipient's bank account, it isn't technically in that user's possession.

How to Send or Request Money

Money can be sent or requested by tapping the pay or request button in the Venmo app and then entering the other party's email address, phone number, or username. If you are the person receiving funds, you can either keep the cash in your balance or transfer it to your linked bank account. Using Instant Transfer rather than the traditional slower delivery adds a fee.

If a payment exceeds your current Venmo balance, the money will be taken from your linked bank account.

Venmo transfer limits = $5000 if verified account

The +1(818) 725-1009 Venmo daily limit for person to person sending and receiving money depends on whether your account is verified or unverified. For unverified accounts, the daily limit is $299.99, while for verified accounts, the daily limit is $4,999.99

Instant Transfer Fees or Standard transfer ( 5 days - no fee )

You can Instant Transfer money from your Venmo account to any U.S. bank account or participating credit card account for a fee of 1.75%. "Instant" means 30 minutes or less in this case.

You can avoid this fee by choosing the standard option, which is free and takes three to five business days.

Do not use for cash advances

How Long Does It Take To Send and Receive Money?

Any money sent from one Venmo user to another should appear immediately in the recipient's account. That's free.
For external bank transfers, standard three- to five-day delivery is free but Instant Transfers cost 1.75% of the amount being transferred.11
If you add funds to your Venmo balance from your bank account, it can take three to five business days for the transaction to go through.5

Swift net runs CBDC payments business w a Corda and Quorum net test

swift-cbdc_iso20022-for-dummies-swift-6th-limited-edition-1.pdf file

swift-cbdc_iso20022-for-dummies-swift-6th-limited-edition-1.pdf link

Ground-breaking SWIFT innovation paves way for global use of CBDCs and tokenised assets

https://www.swift.com/news-events/press-releases/ground-breaking-swift-innovation-paves-way-global-use-cbdcs-and-tokenised-assets

swift_cbdc_experiments_results-report_071022_final.pdf link

swift_cbdc_experiments_results-report_071022_final.pdf file

swift_tokenised-assets_experiments_results-report_071022_final.pdf link

swift_tokenised-assets_experiments_results-report_071022_final.pdf file

Swift CBDC Phase 2 POC - Fabric and Corda for FX payments and conditional transfers, then Securities settements ( DvP ) on Kaleido network

ISO20022 - Financial Transaction Standard

https://www.iso20022.org/about-iso-20022

It describes a common platform for the development of messages using:

a modeling methodology to capture in a syntax-independent way financial business areas, business transactions and associated message flows
a central dictionary of business items used in financial communications
a set of XML and ASN.1 design rules to convert the message models into XML or ASN.1 schemas, whenever the use of the ISO 20022 XML or ASN.1-based syntax is preferred

The resulting models and derived messages are published in the Catalogue of messages and stored in the ISO 20022 Financial Repository available on this website.

This flexible framework allows communities of users and message development organizations to define message sets according to an internationally agreed approach using internationally agreed business semantics and, whenever desirable, to migrate to the use of a common XML or ASN.1-based syntax.

Note: The tool that is used by the Registration Authority (RA) to convert the message models into ASN.1 schemas has been built by OSS Nokalva, Inc.

More information about the use of ASN.1 can be found on the OSS website at www.oss.com/iso20022.html.

Immediate Cross-Border Payments (IXB) Pilot Set to Revolutionise International Payments with Swift Network

https://www.ebaclearing.eu/news-and-events/media/press-releases/6-october-2022-immediate-cross-border-payments-ixb-pilot-set-to-revolutionise-international-payments/First participants are preparing to exchange cross-border instant payments as part of a live pilot with financial institutions in the United States and Europe. The pilot will leverage the real-time payment systems, RTP® and RT1, the IXB solution and key SWIFT components for transactions in the euro and U.S. dollar currency corridor.
EBA CLEARING, The Clearing House (TCH) and SWIFT announced today that the delivery of the Immediate Cross-Border Payments (IXB) pilot service is on track and is set to revolutionise cross-border payments. The IXB pilot service will leverage the existing real-time payment systems RTP® in the United States, run by TCH, and RT1 in Europe, run by EBA CLEARING. IXB will begin processing the first live transactions in the euro and U.S. dollar currency corridor in the coming months.

Developed with the support of 25 financial institutions from both sides of the Atlantic, the IXB pilot has been progressing during the past six months, resulting in the timely delivery of the IXB solution processing the technical messaging between the pilot institutions engaged in the testing and the respective payment systems. End-to-end testing between RTP, the IXB app and RT1 is ongoing with user integration and testing following shortly thereafter.

EBA CLEARING, TCH and SWIFT have been working to move from a successful proof of concept to the design and development of a live IXB service. In cooperation with the supporting financial institutions, the three private-sector organisations designed a service that takes advantage of existing building blocks to ensure a shorter time to market and to leverage existing investments. IXB will enable synchronised settlement of RTP and RT1 payments. This will ensure certainty of execution of immediate cross-currency transactions and constitute a core value of the future IXB service.

Step-by-step guide for Example

sample code block

sample code block

Key Points

References

email money transfer options

articles on emoney

cbdc videos

Global Forum 2022- CBDC

CBDC use case Concepts

ISSA study on CBDC for Post-Trade Settlement - 2021

Executive Order on Ensuring Responsible Development of Digital Assets - 220309

Objectives

Coordination

Policy and Actions Related to United States Central Bank Digital Currencies.

Measures to Protect Consumers, Investors, and Businesses

Actions to Promote Financial Stability, Mitigate Systemic Risk, and Strengthen Market Integrity

Actions to Limit Illicit Finance and Associated National Security Risks.

Policy and Actions Related to Fostering International Cooperation and United States Competitiveness.

Definitions. For the purposes of this order:

Reactions to the Executive Action on Digital Assets

Key Questions to Ask on the US Executive Order

Thoughts on Executive Order on Digital Asset Management and Regulation

The DeFi Opportunity for the Digital Asset program - DeFi has been disrupted, needs reinvention

The CeFi Opportunity for the Digital Asset program - CeFi needs fast, coordinated innovation, efficient delivery for all

Read Between the Lines

US Commerce Department Issues RFC on Digital Asset Technologies

US Treasury on more regulation and oversight for cryptocurrencies - 220916

CBDC support building in US Government agencies as expected from the March Executive Action on Digital Assets

Congress House Reports on Digital Asset Regulation

Press Releases

Recommended Activities

Other options to a FED CBDC for US digital currency

States with Digital Asset Orders or Legislation

CBDC project tracker with filters url

CBDC projects in development using DLT in 2023

Trade and USD reserve currency

US not prepared for the economic sanctions on Russia - 220423

As Fortress Russia crumbles, the global economy faces a new world order

Most see a permanent shift away in the global economy and US dollar as reserver currency

Alternate financial systems grow in the East

Trade is becoming more localized now slowly

Why US role as reserve currency matters

Net takeaways on the Ukraine war and sanctions

A new alignment is growing moving forward

US dollar is leading reserve currency now - issues

Demand for US debt high, rates low as chief reserve currency

US debt levels ( risk ) and interest rates ( return ) drive dollar demand as well

IMF SDR ( Special Drawing Rights ) - should it have a role in trade?

Dollar Dominance and the Rise of Nontraditional Reserve Currencies

FED Study on US reserve currency status - 220706

China moves to become a reserve currency

China’s plan

China digital yuan has good soft launch

The global impact

China’s plan

The global impact

FED MIT OpenCBDC

Project Hamilton completed - 2022

OpenCBDC Github repo

Hamilton - OpenCBDC Whitepaper - 2022

Goals

Summary Outputs

Design Concepts

Unspent Funds = amount of funds, encumbrance predicate, serial number

Systems Operations: Mint, Transfer, Redeem UXTO

Operation set provides authenticity, durability, availability

Transaction Validation Steps

Consensus Models

Atomizer Ordered Transaction Design

2 Phase Commit Transaction Design

Escrow Payment Model on Ethereum

Project Hamilton Phase 2 - 2023

Digital Dollar Project - US CBDC testing

Final Report on Digital Dollar Project CBDC white paper - 2023 - Jennifer Lassiter

Announcement - DTCC Project Lithium looks at CBDC in post-trade settlement

References for Lithium project

Compare CBDC Projects

Hyperledger Projects focused on CBDC

Key Concepts

CBDC concepts & models reviewed - 2024

Macroeconomic modeling of CBDC

Review of Macroeconomic modeling of CBDC

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