??This week in CBDC Chronicles

?? The European Central Bank (ECB) has given an update on the digital euro, an initiative set to bridge the gap between traditional cash and the increasing preference for digital transactions. In a recent speech by ECB Executive Board Member, ?Piero Cipollone, it was mentioned that the rationale behind it’s the digital euro design is to make people's lives easier, offering a cost-free digital payment method throughout the euro area. This digital currency aims to boost the continent's strategic autonomy and lessen its reliance on non-European payment providers.

?? A digital form of cash is on the horizon, embodying cash-like features for the digital realm. The ECB stresses that the digital euro would support offline transactions, remain free for basic use, have pan-European reach, respect privacy deeply, and be issued by the central bank. ??

?? In line with the principle of inclusivity, the digital euro will be available to all businesses and individuals for varying retail payment scenarios. Unlike existing payment methods that are often bound by national or regional limitations, the digital euro promises a seamless experience across borders.

?? Privacy is placed at the forefront of the digital euro’s design. The ECB reassures that transactions would stay pseudonymized with stringent data safeguards and that ongoing adoption of innovative privacy techniques is planned. These safeguards aim to establish high data protection standards, ensuring that the Eurosystem would not identify individuals based on their transactions.

?? A strong emphasis is laid on the role of intermediaries, as supervised payment service providers (PSPs) would become the principal distributors of the digital euro. They would maintain customer relations and benefit from the openness of its standards while avoiding remuneration and holding limits for end-users, with an exemption for corporates. ??

?? A digital euro rulebook is in development, drafted to include input from a broad range of market participants, which will ensure a pan-European reach and a harmonized payment experience while granting the freedom for market innovation. ????

? The ECB's timeline for the transition to a digital euro includes a preparation phase until October 2025, focusing on finalizing the rulebook and selecting service providers. A potential development and full rollout phase is expected to commence from November 2025, contingent on the completion of the EU's legislative process. ?

??? The Hong Kong Monetary Authority (HKMA) is taking the next step towards the future of financial technology by inviting stakeholders to join the second phase of its retail digital currency trials. ??? Mark your calendars for May 17, the application deadline for those interested in contributing to the evolution of the eHKD. Following the initial pilot phase that captivated 16 participants across a panoply of use cases, the HKMA is now setting the stage for an in-depth examination of three critical areas: the programmability of money, tokenization, and the mechanism of atomic settlement.

?? Adding another layer to these efforts for digital sophistication is Hong Kong’s recently launched Project Ensemble, a wholesale CBDC initiative aimed at revolutionizing the interbank settlements with tokenized deposits. ??

?? Diving deeper, the HKMA is also probing interoperability challenges. By examining the interplay between eHKD and other token forms, including those in the wholesale CBDC trials and potentially stablecoins, the Authority acknowledges the complexity of digital ecosystems. The appetizer to this financial tech feast was the introduction of a stablecoin sandbox earlier this week. ??

?? Hong Kong is no stranger to the digital currency playground. Apart from these initiatives, it proudly contributes to mBridge—a cross-border CBDC project—and cooperates closely with China on the digital yuan, allowing visitors to seamlessly top up their wallets using Hong Kong's fast payment systems.

?? The eHKD’s latest chapter narrates Hong Kong's determination to carve out a digital niche, balancing innovation with practical application in the fintech sphere. As Hong Kong pursues these ventures with meticulous coordination and ambitious vision, its journey reinforces the region’s role as a fintech powerhouse, standing at the forefront of the digital transformation in finance. ??

?? Israel is stepping into the future of CBDC with their proposal for its digital currency – the option of implementing an interest-bearing digital shekel. This possibility leaps from the pages of the Bank of Israel's (BOI) report, dubbed the ‘Logical Architecture for the Digital Shekel System’. Unlike the conventional trajectory taken by many central banks, Israel is scripting an avant-garde path where the digital shekel could potentially reward its holders with interest. ??

?? Typically, central bank digital currencies (CBDCs) are designed in a way that doesn't encroach upon the territory of commercial banks. This means they don't usually offer interest, to avoid sparking direct competition with bank deposits ??

?? On the technology front, Israel is keeping its options open. The BOI is technology-agnostic at this stage, willing to contemplate both blockchain and traditional database technologies for underpinning the digital shekel. And amid rising global concerns over privacy in the CBDC arena, BOI firmly reassures that users’ personal identifying information would remain unaccessed by the state. ??

??Time will tell as to whether the option of a remunerated digital shekel will come to pass. Other countries have also considered a tiered-remuneration system in the past, where the interest generated on CBDC holdings increased with the reduction of the amount of CBDC held. ??

?? It’s no secret that a striking surge in CBDC (Central Bank Digital Currency) exploration is emerging globally, encapsulating an astounding ?? 134 countries, which account for 98% of global GDP. This represents a monumental leap from a mere ?? 35 nations engaged in such pursuits since May 2020. Currently, ?? 68 of these countries are moving through advanced stages that span development, pilot programs, or launch.

?? Particularly within the G20, excluding Argentina, the majority are vigorously in the advanced exploration phase. Among them, ???? Brazil, ???? Japan, ???? India, ???? Australia, ???? South Korea, ???? South Africa, ???? Russia, and ???? Turkey are already deep into pilot testing.

?? Contrasting this widespread momentum, the U.S. appears to be lagging in the race, with no immediate plans to introduce a retail CBDC—information accentuated by Federal Reserve Chair Jerome Powell's comments to the Senate Banking Committee, ensuring that the emergence of such a currency isn't a concern for the foreseeable future, mainly due to privacy issues raised by lawmakers. ??

?????? China's digital yuan, or the e-CNY, distinctly leads as the largest CBDC pilot, enabling transactions across 25 cities with over 260 million wallets.

???? Meanwhile, eyes turn towards Europe as the European Central Bank (ECB) diligently prepares for a potential ?? 2025 development phase of the digital euro, following thorough practical trials to ascertain its operability and security.

? On the successful launch forefront, the Bahamas, Jamaica, and Nigeria stand out as pioneers, although not without their peers facing challenges—highlighted by the Eastern Caribbean Currency Union's technical hiccups with the DCash initiative, quickly pivoting to development of a new pilot. ???

?? BRICS nations, characterized by Brazil, Russia, India, China, and South Africa, are charging ahead into pilot phases, while also welcoming new members like Saudi Arabia, Iran, and the UAE to investigate cross-border wholesale CBDCs, aiming to diversify from dollar-reliant systems. ??

?? In the shadow of geopolitical shifts following Russia's actions in Ukraine, the spotlight on wholesale CBDC development intensifies, with 13 cross-border projects like mBridge spearheading this transformation, set to be joined by 11 additional countries this year.??

That’s a wrap on this edition of the CBDC Chronicles. Share your thoughts and drop them in the comments section below or send me a direct message.

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See you in the next edition, until then, stay engaged and keep exploring! ????