Value to Currency to Data !!

Human evolution apart from the genetic diversity from the animal species is marked by the invention of tools and its myriad applications. Such tools accelerated our productivity and improved our way of living, that is incomparable to any other species on the planet.

Today, it’s the technological era, where the foundation is the technology and on top of which new tools are produced that touches every inch of our life! ?

Since the barter system, from the need to exchange goods, to the present where currencies (fiat and digital) are the medium of exchange and to the future where data itself is the currency, all these possibilities are achieved through suitable technology and its mass adoption.

Rapid growth of technology enables new pillars of growth in the economy. 2022 and beyond , we might see the sweeping impacts of IoT, 5G and Distributed Ledgers, that will force innovations in the financial space in an unprecedented way.

Central banks must play crucial role in coming up with monetary policies and regulating the consumer internet, watch crypto currencies and other digital innovations. It also can participate in the innovation by issuing CBDC (Central Bank Digital Currency). ?

So, what is CBDC?

CBDCs are tokens or “programmable money”, it can have specific design features and attributes built into the token itself. It can pay interest directly to the token holder into their wallet. Each central bank could design a currency according to their own monetary policy and economic agendas.

The scope of CBDC encompasses both retail and wholesale payments systems. Wholesale CBDC entail some efficiency improvements but not fundamental changes to the interbank payments system managed by central banks, since balances held by commercial banks at the central bank (reserves) are already in electronic form. Retail CBDC, which would be a digital complement to or substitute for physical cash, would be more of a revolutionary change. Retail CBDC can take one of two forms—either token-based or value-based. These have very different implications for monetary and other policies.

CBDC Design models are :

Project Aber - Saudi Central Bank (SAMA) and Central Bank of the UAE (CBUAE) announced a joint digital currency initiative in January 2019. It was named Project Aber, which literally translates to ‘one who crosses boundaries’ highlighting the cross-border focus of the project.

A total of six commercial banks (three from each jurisdiction) participated in all phases of the project. This allowed an opportunity for commercial banks -- key stakeholders of any wholesale CBDC project — to have a first-hand experience of using and operating a distributed ledger based interbank payment solution. The deployment architecture was highly distributed and provided complete flexibility to banks in hosting their environments.?

The project addressed three high level use cases and was executed in three phases.?The three use cases were as follows:

¤ Use Case 1 (UC1): Payment between central banks

¤ Use Case 2 (UC2): Domestic Payments between Commercial banks

¤ Use Case 3 (UC3): Cross-border Payments between Commercial banks?

Digital Yuan/E-CNY - E-CNY is the digital version of fiat currency issued by the PBOC (People's Bank Of China) and operated by authorized operators. It is a value-based, quasi-account-based and account-based hybrid payment instrument, with legal tender status and loosely-coupled account linkage.

E-CNY uses a two-layered architecture and a two-tier delivery system. The DC/EP (Digital Currency/Electronic Payment) dual offline technology will make sure that transactions will still get processed even if China's online banking and other virtual payment platforms go offline due to poor network signal strength.

Other features - ① DC/EP will not be tied or dependent on the user's bank accounts. It will work independently from the country's existing banking systems. ② Unlike other cryptocurrencies, the Digital Yuan will be issued by China’s reserve bank. ③ To ensure, price stability the Digital Yuan will be backed by the nation’s credit.

The way that DCEP is designed is that each of the large commercial banks have accounts at PBoC for the digital yuan on one side and are working directly with Alibaba (AliPay) and Tencent (WeChat Pay) as large payment providers with access to retail users. DCEP is in the advanced testing phase in four Tier 1 and Tier 2 cities: Shenzhen, Xiong’an, Chengdu and Suzhou.

Project Jura explored the direct transfer of euro and Swiss franc wCBDCs between French and Swiss commercial banks on a single DLT platform operated by a third party. Tokenised asset and foreign exchange trades were settled safely and efficiently using payment versus payment (PvP) and delivery versus payment (DvP) mechanisms. The?experiment was conducted in a near?real setting, used real?value transactions and met current regulatory requirements.

Jura is a public?private collaboration involving the Banque de France (BdF), the BIS Innovation Hub (BISIH) Swiss Centre and the Swiss National Bank (SNB) and a consortium led by Accenture and comprising Credit Suisse, Natixis, R3, SIX Digital Exchange (SDX) and UBS. It leveraged the test environment of a DLT?based Swiss licensed exchange and central securities depository for tokenised assets (SDX), and a newly developed issuance platform for unlisted commercial papers under French law (the Digital Asset Registry, DAR). Both platforms are based on Corda by R3.

Project Jura successfully demonstrates a new way to settle tokenised financial instruments and foreign exchange transactions across borders. It combines the advantages of DLT and a single platform for multiple assets and jurisdictions, while retaining critical controls for central banks, and demonstrates a new way to deploy wCBDC. The DvP and PvP exchanges in Project Jura were conducted instantaneously and atomically, demonstrating that it is feasible to integrate transactions in wCBDCs and tokenised assets on a single third?party platform

The Digital Dollar Project (Project) is a partnership between the Digital Dollar Foundation, a not-for-profit organization, and Accenture (NYSE: ACN) to advance the exploration of a central bank digital currency (CBDC)—or a “digital dollar.” The purpose of the Project is to encourage research and public discussion on the potential advantages of a tokenized dollar, convene private sector thought leaders and actors, and propose possible models to support the public sector as it considers development, testing, and adoption of a CBDC.?

The Project’s “champion” model is a tokenized form of the US dollar that: ? operates alongside existing monies ? is primarily distributed through the existing two-tiered architecture of commercial banks and regulated money transmitters ? is recorded on new transactional infrastructure, potentially informed by distributed ledger technology

The introduction of a tokenized digital dollar would be a driver of innovation for the broader financial system in a fundamental way. A tokenized digital dollar as a new financial medium, combined with new transactional infrastructure such as distributed ledger technology, would provide a new payment rail upon which central bank money can be sent and received. To meaningfully expand upon existing capabilities, it should be portable, sent like a text, thereby allowing settlement irrespective of space and time.?

CBDC, as a new format of the existing currency, is distinct from existing payment methods and allows for the creation of new payment channels that would help support an innovative and more resilient payments landscape. CBDC could exist alongside FedWire and complement (not impede) in-flight initiatives like FedNow.Despite a slight overlap with existing and proposed payment initiatives, a US CBDC unlocks new benefits due to its new payment architecture.

References -

https://www.bloomberg.com/opinion/articles/2021-08-05/central-banks-need-to-regulate-big-tech-s-dna-or-risk-the-next-financial-crisi

https://www.federalreserve.gov/econres/notes/feds-notes/central-bank-digital-currency-a-literature-review-20201109.htm

https://www.brookings.edu/wp-content/uploads/2020/07/Design-Choices-for-CBDC_Final-for-web.pdf

https://cpb-us-e1.wpmucdn.com/blogs.cornell.edu/dist/2/9687/files/2021/06/Cato_CBDC_Summer2021.pdf

https://www.sama.gov.sa/en-US/News/Documents/Project_Aber_report-EN.pdf

https://www.pbc.gov.cn/en/3688110/3688172/4157443/4293696/2021071614584691871.pdf

https://asia.nikkei.com/Business/Markets/Currencies/Central-bank-digital-currencies-can-save-100bn-a-year-report

https://bitcointalk.org/index.php?topic=5288713.0#post_point1

https://www.forbes.com/sites/biserdimitrov/2020/04/16/these-chinese-blockchain-platforms-are-launching-soon-here-is-why/?sh=1425c01a207e

https://www.payments.ca/

https://www.china-experience.com/china-experience-insights/china-to-launch-worlds-first-official-digital-currencys