>> Jenny Gesley: Welcome to
the newest entry in foreign
and comparative law,
the webinar series.
My name is Jenny Gesley, and I'm
a foreign law specialist here
at the Law Library of Congress.
Today, I will be talking to you
about central bank
digital currencies,
the future of the
monetary system.
Just a few housekeeping
announcements at the beginning.
We ask you that you
please use the Q&A feature
to submit your questions.
I will try to leave
time at the end for Q&A.
And hopefully we'll get
to all of your questions.
If we don't have time to
answer all the questions,
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Ask a Librarian Service.
And I have the address for that
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you have another question,
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questions using that service.
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your computer audio,
you can also switch
to phone audio.
And I would also like to point
out that this session
is being recorded.
Okay, so let's get started.
This is the outline for my
presentation, so, I will start
with some general definitions so
they were all on the same page
that we all know what
we're talking about.
Then I will talk about
central bank digital currencies
in general.
I will give an overview
of the definition,
certain design concepts,
some benefits, advantages,
risks associated with that, what
the progress has been so far.
So, but in more general ways.
And after that, we'll talk
about specific examples
from jurisdictions
around the world.
I will talk about some
advanced economies,
about some emerging
market involving countries.
And we will see how much
progress they have made
and how they have
structured the CBDCs
that are already out there.
And like I said at the end,
hopefully there will
be time for Q&A.
So, technology
and digitalization are
changing the way we pay.
The COVID 19 pandemic has
only accelerated that trend
from cash, away from cash
and to digital payments.
And we all know cryptocurrencies
such as Bitcoin are
experiencing all time highs.
However, we've also
seen the volatility
of cryptocurrencies
when, for example,
the price of Bitcoin just last
week dropped by almost 30%
after there were concerns about
tighter regulations in China
and then Tesla's
announcement that first
that it would accept Bitcoin,
then they would not
accept Bitcoin anymore.
And then I saw that Elon Musk
just recently tweeted again
which had an effect on
various cryptocurrencies.
So, we can see there's a lot
of volatility in this area,
actually sometimes called
the Tinkerbell effect,
if you've heard that
term before.
That means that the
price will fall and rise,
depending on what people
believe it's worth,
so that if they believe, for
example, now if used as means
of payment, it will
be worth more.
And if not, then not.
And central banks are taking
note of this development,
that people are moving
away from cash,
that private issued
tokens are some
of the useful needs of payment.
And one of the main
functions of central banks is
to ensure monetary and
financial stability
in their respective
jurisdictions,
and to promote broad access to
safe and efficient payments.
So, and a core instrument
by which central banks
achieve all these objectives is
by providing central bank money.
And traditionally, though,
central banks have
limited access
to digital account based
central bank money.
Those are also known as
reserves or settlement balances.
So, they have limited
access to banks
and certain other financial
public institutions.
By contrast, physical
central bank money, so cash,
is widely accessible
to the public.
But in some jurisdictions,
as I already mentioned,
the use of cash is
decreasing with the possibility
of its complete disappearance.
For example, Sweden would
be a prime example of this.
This would imply that the
public no longer has wide access
to central bank money.
So, that's one point
where central bank digital
currency has come in.
But I should say that reasons
for adopting central bank
digital currencies, or CBDC,
and some different
design choices.
They really depend on
many different factors.
And they are also different in
each individual jurisdiction.
And we will look at all these
reasons more in detail later on.
And there's also differences
between emerging market
economies and advanced economies
for adopting any CBDC.
So, let's talk about
some general definitions.
So, first of all, we'll start
with the basics, what is money.
And money is really
defined by its functions.
So, money has three
basic functions.
One, it's a means of exchange.
That means that it's anything
that is widely accepted
as a means of payment.
Two, it's a unit of account,
which means it's a standard
measure of value that allows us
to compare the value of things.
And third, it's a stored
value, which means it's an item
that holds the value over time.
And money actually differs
from other stores of values
because it's readily
exchangeable
for other commodities.
So, we see from this
definition, though,
money can actually be anything
that fulfills these
basic functions.
So, it doesn't have to
be coins and paper money,
which is what we normally think
of when we think about money.
We think, yeah, coins
and paper money.
But it could be for
anything, for example,
cigarettes in prison,
so I heard.
It's used as money there.
It's also not risk free
store valuable money.
Inflation reduces
the value of money.
And if we have times of rapid
inflation, people may not want
to rely on money anymore
as a store of value.
So, they might major
into other things,
commodities such
as land or gold.
So, what are the types
of money that exist?
There's really only
two types of money,
so money with intended value,
then money without
intrinsic value.
So, money with intrinsic value
is also called commodity money
because it's backed
by a commodity
such as gold or silver.
So, it has, it's money that has
value apart from its U.S. money.
The problem, though,
with commodity money is
that the quantity can
fluctuate radically,
and it also may vary in quality.
An example for commodity
money is the gold standard,
which is a monetary system
where a country's currency
or paper money is a value which
is directly linked to gold.
That was, for example, the
case in the U.S. up until 1971
when the U.S. abandoned
the gold standard.
And currently there's
no countries
that use the gold
standard anymore.
Then we have money
without intrinsic value.
It's also called fiat money.
Fiat is Latin, and it
means let it be done.
So, this is just money
with some authority,
which is generally
the government,
has ordered to be accepted
as a medium of exchange.
So, it's not by a commodity,
but by the full faith and credit
of the authority that issued it.
And you've probably
heard that term.
So, currencies nowadays,
the U.S. dollar, the euro,
those are all fiat currencies.
I'm saying currency.
Currency is the coin and
paper money of a country
that is designated as legal
tender, which circulates
and is customarily used and
accepted as a medium of exchange
in the country of issuance.
We should also define legal
tender while we're at it.
This is the money that's
designated by law as valid
and legal offer of
payment for debts
when it is sent in
to a creditor.
And if you've ever
looked at a dollar bill,
for example, it said
it on there.
So, if you want to
take a look at that.
So, now we're getting closer.
Digital currencies.
What are digital
currencies or digital money?
This is really any form
of money or payment
that exists only
in electronic form.
So, for example,
deposit at banks.
We all, most of us
probably have a bank account
with the commercial bank.
So, this is a digital currency.
Then we have ritual currencies.
And I put that in quotation
marks to differentiate it
from currencies that
we just talked about.
And how are virtual
currencies defined?
There isn't an official
definition,
but there are several
definitions
that are very similar, and I'm
going to take the definition
from the European Union.
That's actually one that
is in the law there.
It says it's a digital
representation of value,
which is not issued
or guaranteed
by a central bank
or public authority.
It is also not necessarily
attached
to a legally established
currency.
And we'll see some examples
over some exceptions
there in a little bit.
It does not possess a legal
status of currency or money.
But it is accepted by
natural league of persons
as a means of exchange.
And it can be transferred,
stored and traded
electronically.
Also the IRS in the United
States has a similar definition.
The IRS defines virtual currency
as a digital representation
of value, which functions
as a medium of exchange,
a unit of count,
and/or a store of value.
So, we talked about the
definition of money,
that's what we hear here.
Up this [inaudible]
in some environments,
virtual currency may actually
operate like a real currency.
But it does not have a yield
tender status in the U.S. So,
what are our cryptocurrencies?
Cryptocurrencies are a
type of virtual currency.
But they use cryptographic
algorithms to validate
and secure transactions.
And those transactions
are digitally recorded
on a distributed ledger,
such as a blockchain,
and are very volatile, which
we already talked about.
And the question here really are
they money is are they widely
accepted as a medium
of exchange?
That's really the question
that's normally debated there.
We know Bitcoin is probably
here to stay as more are used.
But it's still not
widely accepted
as a medium of exchange.
So, we'll see how it goes.
And that's probably more
academic discussion.
Then I would also like
to define stablecoins,
because it's also
important in this regard.
Stablecoins are a type of
cryptocurrency that is backed
by sovereign fee of currencies,
or other safe assets,
such as the U.S. dollar
to stabilize the value.
So, they want to counter the
volatility of cryptocurrencies.
And most of the stablecoins
that are issued were,
are pegged to the U.S. dollar.
So, in this regard, we also need
to mention cryptocurrencies
backed by corporations,
because those are
actually one of the reasons
that have been cited why
central banks should get
into the business of
issuing digital currencies.
So, one of the examples
that probably the one,
the most important
one that people heard
about was Facebook's Diem,
formerly called Libra.
So, this will be,
cryptocurrency backed
by corporations are backed
by the asset reserves
of the institution
that issues them.
And Facebook obviously
has lots and lots
of users, millions of users.
So, that would be quite some
competition for central banks.
So, I would like to go into a
bit more detail here, just so,
because like I said, it's the
reason why central banks might
issue central bank
digital currencies.
So, Facebook was
originally planning
to get a payment system
[inaudible] in Switzerland
from FINMA, the regulator there.
But those plans were abandoned.
And now they decided
they'll move the operations
to the United States and
only issue it for now
at least a dollar
backed stablecoin.
Diem initially proposed
a universal currency tied
to a basket of major
currencies and government debt.
But then they switched
to multiple stablecoins
after criticism.
And in the U.S. now,
the exclusive issue
of Diem U.S. dollar
will be Silvergate Bank,
which is a California
state chartered bank.
You might be wondering why this
state chartered bank will be
issuing the stablecoin
for Facebook.
Well, in July of 2021,
the Office of the Control
of the Currency released a
notice letting banks provide a
variety of services for
assets issued on a blockchain,
especially stablecoins.
And it also had been reported
that Diem will allow a
small scale pilot latency.
So, we'll see how the public
rates it, if it will be, yeah,
if they trust Facebook enough,
or if this project will
like actually happen.
And it was probably
interesting to see.
So, let's move on
to our topic today,
central bank digital currencies.
So, what are central
bank digital currencies?
So, there's no official
definition of what they are.
The new form, or
central bank money,
it would fulfill all
the functions of money
that we talked about
at the beginning.
The Bank for International
Settlement,
which is also often called the
central bank of central banks,
in 2018, defined central
bank digital currencies
as a digital form of central
bank money that's different
from balances in traditional
reserve settlement accounts.
So, they say it would be central
bank issued electronic money,
it would be denominated
in the national unit
of account that's
also important.
So, if it's a foreign currency,
there wouldn't be a
central digital currency.
And most importantly,
it would be a liability
of the central bank.
Even if it's issued
through intermediaries,
it would be a liability
of the central bank
and not of the intermediary.
And because of this, there
would be low volatility.
And in connection with that, you
might have heard some academics
or commentators talk
about synthetic CBDCs.
But those are not actually
central bank digital currencies.
So, what are they?
So, it's been suggested
that private sector
payments [inaudible] could
issue liabilities.
And those would be matched by
funds held at the central bank.
A TAC, it wouldn't be a CBDC
because the end user
would not hold a claim
on the central bank.
But it would be a claim
on the intermediary,
the private sector
payment service provider.
So, even though they're
called synthetic CBDCs,
they're not actually CBDCs
according to the definition
that I just talked about.
So, what's the progress
so far on CBDCs?
And the data is from my,
from a survey that the Bank
for International Settlement
published in January of 2021.
That's actually already the
third survey that they did
on central bank digital
currencies.
And they found that it
was conducted among 65
central banks.
And they found that 86%
of survey participants are
actively researching the
benefits, drawbacks of CBDCs,
while 60% conducting experiments
or proofs of concept.
And 14% are moving forward to
developing their pilot projects.
And what was also very
interesting is that seven
out of eight central banks,
they were in advanced stages
of CBDC development
were in emerging market
and developing economies.
And, like I said, I will talk
about some specific examples
in the third part of
this presentation.
So, this is just the general
numbers, a general overview.
So, what about consumers?
Are consumers, is the
public ready to adopt CBDCs?
What's the most important thing
for digital payments
is really public trust.
And I found a [inaudible]
opinion poll that was conducted
between October and December of
2019 by the official monetary
and financial institutions
forum on public trust
and monetary institutions,
payment characteristics
and digital currency across 13
advanced and emerging countries.
And they found that in
almost all countries,
the respondents indicated that
they would feel most confident
if digital money issued
by the domestic monetary
[inaudible] central bank.
But also, globally expressed,
actually lack of confidence
in digital money issued by a
tech or credit card company,
that's [inaudible] particularly
true for respondents
from advanced economies.
So, that sounds like Facebook's
Diem would not really have a
chance if central banks decide
to issue central bank
digital currencies.
Then it was also interesting
in the survey I found
that across all countries,
respondents were unanimous
in deciding safety
from fraud and theft
as the most important
feature of digital currencies.
And then second were
privacy protections.
And speed was actually the
least important characteristic.
So, that's something that
central banks need to keep
in mind when they design their
central bank digital currencies.
And, in general, emerging market
respondents were much more open
to digital money than the
advanced economy counterparts.
And there are also some
differences depending on income,
then also depending on
age, and then, yeah,
level of education
played a role.
So, what are some of
the design choices?
And this is just a very
high level overview.
So, first of all, we have
to decide should it
be widely accessible
or just restricted access?
Then the degree of
anonymity could be ranged
from complete anonymity
to no anonymity at all.
Operation availability ranging
from current opening
hours to 24/7.
Interest bearing
characteristics, yes or no.
And I will talk about
this problem later.
Interest could make them
more attractive and similar
to deposits, but they could
also have an influence
on commercial banks, so we'll
talk about that later, though.
And then connected to that
is the question should the,
or will there be limits or
caps on individual holdings?
So, those are just some
of the considerations
that central banks
have to look into.
So, there are really two
models under discussion.
So, one is a wholesale CBDC
where access would be limited
to a predefined group of users.
And then we have
the retail CBDCs,
which are also called
general purpose CBDCs,
which would be widely
accessible.
So, the equivalent,
digital equivalent
of cash for use by end users.
And I will focus on the
retail CBDCs for this webinar
because it's the most
interesting for our purposes.
I would like to note a lot
of central banks have
done advanced research
or advanced stages of
developing a process CBDCs,
but this is unfortunately beyond
the scope of this webinar.
So, what are some of the reasons
for central bank
to adopt a CBDC?
We already talked about
declining cash usage
in some jurisdictions.
So, that could be a factor.
Especially for emerging markets
and developing economies,
improved financial
inclusion for unbanked
or underbanked communities
is a factor.
In fact, the most
important factor, basically.
And then, in general,
the interest
in technological innovations
for the financial sector,
making payment systems more
efficient, fast, instant,
that could be a reason.
And then where we talked about
the fear that central bank money
in transactions will be replaced
with private digital
tokens like Facebook's Diem.
The question here is really the
problem that they're volatile,
there's inadequate
consumer/investor protection.
So, central banks really
need to look into this
so they can still
fulfill that role.
And then there's also the risk
of so called digital
dollarization related
to cross border CBDC.
So, what do I mean by that?
The term dollarization is
normally [inaudible] for the use
of any foreign currency
by another country.
So, let's assume, for
example, in the United States,
Canada issues a CBDC that's
highly, yeah, liked by people
in the United States,
and suddenly everyone
uses the Canadian CBDC,
no one uses the U.S.
dollar anymore,
and that would have an impact
on the Federal Reserve stability
to conduct monetary policy and
ensure financial stability.
So, that's definitely something
that central banks are aware of,
and that they need to look into.
So, and also, yeah, what are
some of the legal, economic,
technical considerations that
go into developing a CBDC?
And this list is by
no means complete.
I just put a few
questions on here.
The most important question
probably is does the central
bank actually have
the legal authority
to issue a digital currency?
And connected to
that is the question,
what will be the legal
tender status of CBDCs?
The BIS survey from
2021 that talked
about at the beginning
found that 26%
of the central banks do not
currently have the authority
to issue a CBDC.
And 28% were unsure whether
or not they would have
the legal authority.
So, in those cases, it's
probably the way the statute
or wherever they get the
operation from is phrased
in such a way that it
could be interpreted
like that, but maybe not.
And the question with regard
to legal tender status,
if it should be replacing
or be equivalent to cash,
then it would need to
have legal tender status.
Another question is compliance
with anti money laundering
and counter terrorism
financing requirements.
And connected to
that is the question
of privacy considerations.
So, this is a particular concern
with regard to anonymous CBDCs,
which I already talked
about before.
This is like one of
the design choices,
should it be complete anonymous,
or should there be no anonymity,
or should it be somewhere
in between?
That's the fear that CBDCs might
be used for elicit purposes
if they are completely
anonymous.
On the other hand, people
prefer cash, among other things,
because of its anonymity.
So, CBDCs would have to
be designed in such a way
that they provide
something equivalent.
Then there's also the
problem that there might be a
so called digital run.
Flight from commercial banks to
central banks in terms of intent
of prices and the risk
of disintermediation
of commercial banks.
So, what do I mean by that?
We've all heard of bank first.
So, during a systemic
banking crisis,
holding risk free central bank
issued CBDCs would be suddenly
vastly more attractive
than bank deposits.
So, there could be a sector wide
run on bank deposits to CBDCs.
So, this would magnify
the effects of the crisis.
So, yeah, the digital run.
And the problem of
disintermediation
of commercial banks,
so it really depends
on what households will do.
So, if they substitute
bank notes with CBDCs,
then the central bank,
commercial bank balance
sheet will not really change.
But if they, however, replace
commercial bank deposits
with CBDCs, then the extreme
version of digital run,
then this would imply a funding
loss for commercial banks.
And this could lead
to a disintermediation
of the banking sector.
So, this, in turn, would resolve
that banks would have to try
to offer better conditions
on the deposits in order
to pack their deposit base.
But this then would apply
higher funding costs for banks,
which would be passed
on to consumers.
So, you see there's a
lot of things that banks,
central banks have
to think about.
There might also be risks
to central bank independence
if they have a greater
economic role.
What do I mean by this?
During emergencies,
it has been suggested
that a central bank could agree
to act as a government agent
and execute a CBDC
fund transfers
on the government's behalf to
individuals and businesses.
So, for example, now during
the COVID 19 pandemic,
it has been suggested
to use CBDCs
to deliver stimulus packages
to households and businesses.
This also, I mean, you might
have heard the term helicopter
money, so this is what that is.
But the problem here is
helicopter money is a form
of fiscal policy.
And we need to separate monetary
and fiscal policy in order
to ensure central
bank independence.
So, there should
not be influence
of politics on central bank.
There should not be pressures
to do certain things.
So, that's certainly
something to keep in mind.
And then in general,
like the opinion poll
that I mentioned short
cybersecurity is a big issue,
because people are
afraid of fraud and theft.
So, that definitely needs
to go into the design
of a digital currency.
And then, in general, also how,
what technical solution
will be chosen
for the CBDC is the question.
So, it could be a digital,
the central bank could issue
a digital currency token
that would circulate
in a decentralized way
without central ledger.
You could use DLT technology,
such as block chain.
The problem is really all those
new technologies, such as DLT,
because they're new, we don't
know as much about them yet.
How robust are they?
Central banks have
been experimenting
with them for a while.
But they still don't
know enough about it.
So, that's also something
to keep in mind.
Other ways to, yeah, for
technical solution for CBDCs,
they could be deposit accounts
with the central bank
established for all households.
And then the actual servicing
and technical maintenance
of the [inaudible] would
probably be assigned to one
or several third
party providers,
because otherwise central
banks might be overwhelmed
by this new task, because they
already have enough to do.
So, after all these
general remarks
and general considerations,
let's look at some examples
from around the world,
and what some
of the countries have
decided with regard
to those design features.
So, I would like to talk
about first about the Bahamas,
because on October 20th,
2020, the central bank
of the Bahamas launched their
first worldwide retail CBDC.
It's called the Electronic
Bahamian Dollar,
or also adopt Sand Dollar.
And they say its main purpose is
to promote more inclusive access
to regulated payments and other
financial services for unbanked
and underbanked communities
and socioeconomic groups
within the country.
So, that's also what we saw,
that this is the primary
motivation for emerging markets
and developing economies,
to issue CBDCs.
And in the Bahamas, the central
bank didn't have the authority
to issue electronic money
or to make a legal tender.
So, that's why the central bank
of Bahamas had to be managed,
which they did in 2020.
And I put the legal
basis here on the slide.
So, Article 5, Paragraph
1(h) says that the functions
of the bank are to issue
and manage the currency.
Paragraph 1(p) then says the
functions are to regulate
and oversee the issuance,
provision, and functions
of payment instruments,
which includes the issuance
of electronic money.
Then Article 1, Paragraph 1
clarifies that the currency
of the Bahamas comprises notes,
coins, and electronic money.
And then Article 12
says that all notes
and electronic money
are legal tender.
So, that addresses
all these issues.
Sand dollars are then stored
on digital wallets, maintained
and offered through so
called wallet providers.
And I will talk about what
they are in just a second.
So, the central bank
of the Bahamas Article 15
authorizes the central bank
to make regulations for the
digital currency framework.
And public consultation on those
draft regulations took place
from February 15th
to March 31st, 2021.
The central bank
announced on their website
that the finalized
regulations would be issued
by May 1st, 2021.
However, I have not seen
them published to date.
They will probably do it soon,
or I have just not
seen them yet.
So, what do they, the
draft regulations cover?
So, first of all, who qualifies
to be a wallet provider?
So, they said that it's four
groups; commercial banks,
cooperative credit unions,
money transmission businesses,
and payment service providers.
And as of mid March, 2021,
nine wallet providers have
completed cybersecurity
assessments of the
technology systems [inaudible]
to distribute the CBDC.
So, and they either use,
those wallet providers either
use the [inaudible] app,
which has been developed
by the central bank,
or they can use their own
proprietary mobile apps,
and all those wallet [inaudible]
must have multifactor
authentication features.
And no matter which app they
use, they must be interoperable.
Or they will be at
least in the future.
All wallet providers
must complete a robust
and intensive cybersecurity
assessment
by an independent national
firm before they can
receive approval.
So, they're really addressing
here the fears of consumers
that their privacy
will not be protected
or that the data will
not be protected.
What else do the draft
regulations cover?
The application process to
become a wallet provider,
minimum standards
of interoperability,
what I just mentioned.
Then consumer protection
aspects, financial stability,
financial inclusion, because
this is really the main purpose
of the CBDC in the
Bahamas, several obligations
of wallet providers,
wallet limits,
and then enforcement powers.
So, yeah, with regard
to financial stability,
so remember that we talked about
[inaudible] of commercial banks,
risks to financial stability.
And what they did in the Bahamas
to counter these fears is they
said to constrain the ability
of the sand dollar, while as
to substitute for deposits
at commercial banks, the
central bank would be empowered
to limit the amount of
the digital currency
that individuals, businesses,
and other non supervised
financial institutions can hold,
and also no interest would be
paid on digital currency held
in [inaudible] wallets.
On the other hand, limits on
the currency also have a problem
if you want them to
be equivalent to cash.
There could also be
future [inaudible].
I guess we'll see how it
plays out in the Bahamas.
Other Caribbean jurisdictions
are also very advanced already
with their CBDCs.
And that just confirms the
results from the BIS survey
that seven out of
eight jurisdictions
in advanced stages are
in emerging markets
and developing economies.
So, Jamaica, for example,
on March 22nd, 2021,
the Bank of Jamaica
announced plans for its CBDC.
And this says it
will be hybrid CBDC,
so a cross between
wholesale and retail.
And what's interesting,
as I've said,
they will not use
blockchain technology.
They will use an existent
payment system framework.
They say that's efficient
enough.
Also, currently, the BoJ
does not have the right
to issue a digital
currency as legal tender,
so the BoJ Act Amendment
is also underway.
And from now until
December of 2021,
the CBDC in Jamaica
will be tested,
so as the pilot CBDC
solution, it will be tested
in the Fintech Regulatory
Sandbox.
And the bank announced
that they're planning
on introducing the
CBDC in early 2022.
Then the Eastern Caribbean
Currency Union is also
in its advanced stages.
If you don't know the Eastern
Caribbean Currency Union,
it was established in 1983.
And the Eastern Caribbean
Central Bank is the monetary
authority there.
And it's a group of
eight island economies;
namely [inaudible] Antigua
and Barbuda, the Commonwealth
of Dominica, Grenada,
St. Kitts and Nevis,
Saint Lucia [inaudible].
So, on March 31st, 2021,
they had the public roll
out of the Eastern
Caribbean Central Bank's CBDC,
and it's called DCash.
And it's just the
digital version
of the Eastern Caribbean dollar.
But currently they did not roll
it out in all the countries.
They are doing a 12 month
pilot in just a few countries,
in Antigua and Barbuda,
Grenada, St. Kitts
and Nevis, and Saint Lucia.
So, let's go to a
different part of the world.
Russia actually also just
recently announced its plans
for the digital ruble.
In October of 2020,
they published a public
consultation paper.
And then in April of 2021,
they published a digital
ruble concept based
on this public consultation.
And this concept describes all
the specifics of implementation
of the target model on
the different dates.
So, what Russia is planning, and
they say by December of 2021,
they will create a prototype
of digital ruble platform.
Then in January of 2022, they
will develop draft amendments
to the central bank legislation,
or to give the central bank the
right to issue digital currency.
And then first quarter of
2022, they will launch testing
of the prototype of the
digital ruble platform.
And all these papers,
the digital ruble concept
and digital ruble, they
are available on the Bank
of Russia website in English.
So, if you would like to read
more about this, you can just go
to the website and
read all the details.
So, let's go to China,
which is very interesting,
because it's one of the first,
it's the first central bank
of a major economy to roll out a
digital version of its currency.
And you probably read
about this in the news.
There's several names
for the digital currency.
DCEP, which stands for Digital
Currency Electronic Payment.
Then digital RMB,
digital yuan, or e CNY.
But that's all the same.
So, currently, they're
doing pilot projects
in several major cities,
but no official nationwide
launch date has been
announced yet.
So, for example, one of the
pilot projects took place
in February of 2021 in Beijing
during a lunar new year.
They handed out a total
of 10 million one,
which is around 1.5
million dollars.
And they were distributed
for about 50,000 packets
of 201 each, which is about $30.
And recipients were
able to spend the money
at designated offline
locations or parts
of an economist website jd.com.
But those vouchers were only
valid for a certain time
from February 10th
to February 17th.
And the test was also
only open to those
with a Chinese ID number
or with residents' permits
from Hong Kong, Macau,
or Taiwan.
And that was the third test
of the digital currency.
And then, yeah, other
major cities.
For example, [inaudible]
had similar experiments.
So, currently, the People's Bank
of China doesn't have
the lead authority
to issue digital currency, and
the law needs to be amended.
So, that's why on
October 23rd, 2020,
the PBOC released
draft revisions
to the law for public comment.
And the important article
there is Draft Article 19.
And that would say that
in its amended version,
[inaudible] equals both
physical and digital forms.
So, that would be the
legal basis for the PBOC
to issue the digital currency.
And the result of the law is
on the 2021 legislative agenda
of China's National People's
Congress Standing Committee.
But only as one of the
preparatory projects.
And my colleague who
covers China told me
that means it's lower
priority, so it's unlikely
that it will be passed in 2021.
So, how is the digital
currency in China structured?
So, the digital currency
will be issued by the PBOC
to commercial banks and
non bank payment platforms
and other intermediaries.
And those, in turn,
will make the currency,
data currency available
to end users.
And DCEP will be stored in
digital RMB wallet apps.
So, similar to other
digital payment apps
that people already have.
But it's important
to note, again,
it would be a direct
liability of the PBOC and not
of the commercial banks.
They only access intermediaries.
Because otherwise it wouldn't
fall under the definition
of a central bank
digital currency anyway.
What's interesting, they said,
it will not be blockchain based.
There will be conditional
anonymity they call it.
So, it means privacy by design
is integrated into the CBDC.
So, the data provided by
users will be [inaudible].
So, depending on the amount,
there will be different
accounts, so general account,
premier account, depending
on which one it is,
there will be more
data released or not.
And then data access will
also be highly restricted
to eliminate privacy concerns.
Supposedly there
will also be support
for dual offline payments,
which means that both payor
and payee can be offline.
So, similar to cash then.
And they say there will
also be support for a
so called smart contracts.
So, let's go on to Sweden.
Sweden's central bank started
their e krona project in 2017.
In case you're wondering why
Sweden central bank is doing an
e krona project and why they're
not part of the digital euro,
why they don't have the euro,
even though the European
Union member states,
so all EU member states
are part of the economic
and [inaudible] union, and they
coordinate their economic policy
making to support the
economic aims of the EU.
But it's only a certain
number of member states
that have replaced the national
currencies with the euro.
And those member states
form the euro area
at the European central bank
is the monetary authority
for those countries, which is
currently 19 EU member states.
But Sweden is not one of
them, because they have not
yet fulfilled all the
necessary requirements
for the adoption of the euro.
They also don't have
a target date.
So, they're called member
states with a derogation.
So, in Sweden, it's
still the central bank,
which is the monetary authority
and not the European
central bank.
So, what's the purpose of the
proposed e krona in Sweden?
They say they want to
provide a public alternative
to future commercial
digital currencies.
So, one of the reasons that we
talked about, and they also want
to ensure that the trust in the
monetary system is maintained.
So, those go together.
If people flee to private,
privacy issued digital tokens
that might undermine
financial stability.
They say a technical solution
they will most likely use,
distributed ledger technology,
blockchain technology.
And there's two phases
in Sweden.
So, they just completed
the first phase.
And they issued a report after
this phase was completed.
That report, English translation
is also available on the website
of Sweden central bank,
so you can look at that
if you are interested.
If you're familiar with our
global data monitor website,
my colleague also wrote an
article about the report,
which is available
on that website,
so you can also look at that.
So, in the first case,
the central bank evaluated
what laws may apply
to an official digital
currency, whether or not the law
of the central bank
would be to amended
so they can issue
such a currency.
And there are analyzed
different technical solutions
of an e kronan in relation
to anti money laundering
regulations.
So, the second phase
will start now.
In that second phase, we will
bring in commercial banks
and other market participants
to test how it might
work or practically.
The Swedish government
has also tasked a group
with investigating the future
role of the national state,
including the central bank
in the Swedish payment market
in general, and what role an
official eCurrency could play.
But this report is not due
until November 30th, 2022,
so it's [inaudible] we will
see an official e krona before
that date.
And, yeah, the law would
also have to be amended,
or a new law would
have to be passed
to allow the central
bank to issue an e krona.
So, what about the
European Union?
I have this nice quote here from
Christine Lagarde, the President
of the European Central Bank.
She said the euro
belongs to Europeans
and we are its guardian.
We should be prepared to issue
a digital euro should the
need arise.
Should the need arise
also indicates
that they haven't made a
decision yet on whether
to launch a digital
euro project.
And they said they would make
such a decision towards
the middle of 2021.
But, on the other hand, they
have non extensive preparations
which I will talk about now.
Oh, and also just
a quick remark,
if you follow European Union
news, in September of 2020,
the European Commission
published a legislative proposal
on markets and crypto
assets, also called MiCA,
which would regulate
crypto asses
that fall outside the scope
of current EU financial
market regulation.
But this express exemption for
central bank digital currency.
So, MiCA would not
apply to CBDCs.
Ooh, that was too much.
I have to go back.
Okay, here we go.
So, in October of 2020,
the European Union's
high level task force,
the euro system high
level task force,
published its report
on digital euro.
And in that report, it defined
a digital euro as a liability
of a euro system, recorded in
digital form, as a complement
to cash and central
bank deposits.
And it's important to say
it will not replace cash
or central bank deposits,
which is one of the fears
that someday there will
be no more cash for use
in retail transactions
available to the general public.
And then they identified
possible scenarios
that would require the
issuance of a digital euro.
So, they say, first of all,
if there's increased demand
for electronic payments in
the euro area in general,
then we should issue
a digital euro.
Or if there's a significant
decline in the use of cash
as a means of payment, for
example, like it happened
in Sweden, if that would
happen in the euro area,
there would also be a reason
to issue digital currency.
Then they say the launch of
global private means of payment,
what we talked about, for
example, Facebook's Diem sadly,
everyone likes it,
everyone uses it,
those could raise regulatory
concerns and pose risks,
so that would also
be a good reason
that the central bank steps in.
And then the problem of digital
dollarization that we covered,
if there's a broad
take up of CBDCs issued
by foreign central banks and
the European central bank would
sadly not be able to fulfill
its functions anymore.
Then in April of 2021, a
public consultation report
was published.
But like I said, they
haven't actually decided yet,
and they will decide by
the middle of 2021 whether
or not they will allow
a digital euro project.
But I just read an
interview with Fabio Panetta,
who's a member of the
Executive Board of the ECB,
and he said that if we
do it, the earliest stage
for CBDC would be 2026,
so that's still a
little longer until then.
So, not as advanced as
other jurisdictions.
And then one of the things
that would have to be discussed
in the European Union
is the legal authority
of the European central bank.
Most currently, it doesn't
have the legal authority
to issue digital currency.
Article 1R28 of the
TFEU just states
that the European central
bank has the exclusive right
to authorize the issue of
euro bank notes within the EU,
and that only such notes
have legal tender status.
And then the member states are
authorized to issue bank coins,
subject to approval by the
ECV of the volume of issue.
So, this is, first of all, they
would have to amend the law
to give them the general right
to issue a digital currency.
And then they would have
to decide would it be digital
bank notes or digital coins?
So, depending on that, it
would either be the ECV
in charge or the member states.
So, those are still just some
of the questions that need
to be discussed in
the European Union.
So, let's briefly talk
about the United Kingdom,
because on April 2021,
the British Finance Minister
floated the idea of a
so called what he
dubbed Britcoin.
And he thought that idea when
he announced the creation
of a CBDC task force, which
the Treasury and the Bank
of England, which will
coordinate the exploratory work
on a potential retail UK CBDC.
But they have not yet
made a decision on whether
to introduce the CBDC.
So, this is just, you
know, they're looking
at different scenarios.
And for their purpose, they
also established two external
engagement groups.
So, one is called the
CBDC engagement firm,
which would engage
senior stakeholders
and gather strategic input in
all the non technology aspects.
So, just the practical
challenges.
And then there would be
a CBDC technology forum,
which would focus on the
technology aspects of CBDC.
So, what technology
should they use?
And as I already mentioned,
CBDCs would be introduced
alongside cash
and bank deposits.
So, like the European central
bank, they want to make sure
that people know that
it will not replace cash
and bank deposits, that it
will be equivalent to cash,
but it will not replace cash,
because not everyone necessarily
wants a digital currency.
So, let's switch to
the United States.
And I have another quote
here from Jerome Powell,
who's the Chairman of
the Board of Governors
of the Federal Reserve System.
And he said in April of 2021,
"it is far more important
to get it right than it is to
do it fast or feel that we need
to rush to reach conclusions
because other countries
are moving ahead."
So, that shows us that the
U.S. is taking a more cautious
approach with regard to CBDCs.
It doesn't necessarily
mean, though,
that the U.S. is not
researching CBDCs actively.
It just means that no
decision has been made
yet on whether to issue a CBDC.
So, for example,
in August, 2020,
Boston's Federal Reserve
announced a multiyear
collaboration with MIT's
digital currency initiative
to develop a hypothetical CBDC.
And what they do there, they're
exploring the use of existing
and new technologies to build
and test a hypothetical
digital currency platform.
So, they are focusing here
on the technology aspect.
And then there's also some
bills were proposed in the House
and Senate last year as part of
the Coronavirus relief response,
which would have required
the Federal Reserve
to create consumer accounts
and deposit central bank
due to currency in them.
Those measures didn't pass.
They were called
digital dollar wallets.
In case you're interested,
those bills were HR6321
and Senate Bill 3571.
Like I said, they didn't pass.
This is something that we talked
about before when I mentioned,
yeah, the helicopter money.
And then there's also
some private initiatives
that you might have read about.
In May of 2021, the U.S.
nonprofit digital dollar
project, which is a
partnership between Accenture
and the Digital Dollar
Foundation,
they announced allowance of
at least five pilot programs
over the next 12 months to
test the potential users
of a U.S. CBDC.
And the goal of this initiative
is really just to generate data
on functional, sociological,
business users' benefits,
and other facets of U.S. CBDC,
so that this data can be used
in research, in the
public discussion,
as well as inform policy
considerations by Congress.
They also published
a white paper.
So, this is also something
worth looking into,
and a very interesting
development.
And some of the, and some
of the advanced economies
like the United States,
the question or the reasons
for [inaudible] CBDC could also
be just making payment systems
more efficient.
So, the question is really is
that CBDC [inaudible] can we
just approve the current system?
For example, the Federal
Reserve is working on the
so called FedNow Service,
which will be a new
instant payment service,
which would enable all financial
institutions to provide safe
and efficient instant
payment services in real time,
around the clock, and
every day of the year,
so that might actually
be an alternative
for advanced economies if this
is the only reason why they're
introducing a CBDC.
So, if it's one of
the other reasons,
or if it's in a more
emerging market economy,
and they are really looking
for a financial inclusion,
then that would obviously
not be a substitute
for this [inaudible].
This is just one of
the considerations.
Okay? So, this concludes
this part of my presentation.
We will now move onto the Q&A.
And like I already mentioned,
if I don't get to your question,
or if you have a question later
on, you can always submit them
through our Ask a
Librarian service.
You can see the address
here on the PowerPoint.
You can also just go to law.gov.
There's also a link to it.
And I would also like to
mention our next foreign
and comparative law
webinar on June 17th, 2021.
It will be on new laws of China
and how to find them online.
So, for example, if this
presentation got you interested
in China's digital currency and
you want to research that more,
it would probably be a good
idea to attend that webinar
to know how you can find
Chinese legislation.
Okay, so, I'm going to take
a second to look at the Q&A.
And then I will answer
those questions.
So, just give me a second.
I see the first question,
I guess I've already
answered that,
what kinds of currency looking
into utilizing implementing
a CBDC?
So, the ones I mentioned were
the most interesting ones
in my view.
And it's really a lot
of advanced emerging market
economies and looking into.
There are others that I
did not mention that maybe
in a more advanced state.
But those are the
most interesting ones,
the ones that have
been introduced lately.
The question, I have
another question here.
What would be the motivation
for a private company
to issue a digital currency?
So, for example, yeah,
Facebook says that they, yeah,
they are a company that
would like to, yeah,
provide services to people.
I mean, this has been
criticized a lot.
I've seen other digital
currencies issued
by private companies.
They also mention other reasons.
I can't think of the name of, so
another one, they said that one
of the reasons they would
like to issue a digital
currency is financial inclusion.
So, that similar to, yeah,
the emerging market economies.
So, in particular with regard
to cross border payments,
they say it would help.
So, oh, the name
was SILO, I think,
which is a blockchain
payments platform.
They said their main reason
was financial inclusion.
The problem, though,
with financial inclusion is also
[inaudible] need a smartphone
for all these digital apps.
So, sometimes people will
not have the smartphone.
So, there's a question,
if you can relate chief
financial inclusion
with the CBDC.
So, then there's a question
about the fear of replacing,
CBDC's replacing cash
or bank deposits,
and the usage of credit cards.
Do we know how credit card
companies might react to CBDCs?
I guess we already, yeah,
we actually heard about this
with regards to,
we know that a lot
of companies were
supporting Facebook's Libra
at the beginning of Facebook's
Diem, and then after criticism,
decided to end their
collaboration.
So, they are definitely
interested.
And they're keeping
track of all this.
And depending on how the
individual's CBDCs are
structured and designed
with a different, like how,
what type of other providers
there will be, for example,
then credit card
companies might,
yeah, actually participate.
So, that's something to be seen.
But I know they're definitely
all watching it [inaudible]
that's there, getting more
involved with cryptocurrencies,
so I'm guessing they would
also be involved in some way
with central bank
digital currencies.
Let's see.
So, there's also a question,
what's the difference
between a digital currency
and electronic bank deposits,
so electronic bank deposits
are digital currencies,
so there's no difference.
It's electronic bank deposit
is a type of digital currency.
The question, if CBDCs
are widely adopted,
what would that mean
to the current other
digital currencies in use?
So, that remains to be seen,
because CBDCs would just be
digital equivalent of cash.
So, central banks are hoping
that people will, yeah,
use the central bank digital
currencies, which are safer,
a safer alternative than Bitcoin
and other cryptocurrencies.
So, people might not, so
what they're hoping is
that the CBDC will be used as a
means of payment and not Bitcoin
or other cryptocurrencies
anymore.
But the thing is,
it will probably,
cryptocurrencies
will not go away just
because central banks suddenly
decide to issue digital money.
It's one I talked about
that as long as people think
that they are still of value,
then they will still be around,
especially Bitcoin
will still be around.
Although the only problem with
Bitcoin is I guess it has,
there's a fixed supply,
whereas fiat currencies,
central banks control
the supply,
and they can increase
its, which they have done
for some recent years with
the [inaudible] programs.
So, I mean, central banks are
hoping if there's a high uptake
of cryptocurrencies or by the
public as a means of payment,
and then the central bank
digital currencies are issued,
that people will come
back to the central bank,
they will not be replaced.
And normally from the
opinion poll, it's most likely
because people trust the
monetary situations more
to issue digital currency.
It's much like that people
will then use them more.
But, like I said, I don't think,
it will still definitely be
an investment opportunity
for people, so that will
definitely not go away.
I see a question, whether
or not there's any effort
to develop a global
digital currency.
I have not read anything about
a global digital currency.
And that would also be difficult
because one of the definitions
of the central bank digital
currency is that it's
in the domestic currency, so
that probably wouldn't work.
I mean, something
to think about,
maybe special drawing
rights from the IMF.
But I haven't really
read anything about that,
that there have been,
yeah, debates about that.
Will the market price
of the digital currency
mirror the country's currency?
If they will be just the digital
equivalent of cash, then yes.
So, they will be the same.
So, you can either use cash or
you can use digital currency,
whatever is more
convenient to you.
I also see that are
there any concerns
that cryptocurrency will
disintermediate central banks
if the central banks don't
move on issued CBDCs?
Yes, for sure.
So, that's really one
of the reasons why central banks
are looking into issuing CBDCs.
And because I mentioned,
cryptocurrency is issued
by corporations, more other
private digital tokens are very
volatile, there's not, no good
consumer or investor protection.
So, the functions of the central
bank to maintain monetary
and financial stability are
at risk if they don't act.
I see there's a lot
of questions here.
And it's already
actually past our time.
So, I apologize if I did
not get to your question.
Like I mentioned, you can
always submit your question
through our Ask a
Librarian service.
And we, I will try to
answer all of those.
In the slides, I also
included links to some
of the documents I
talked about today.
So, when you receive the slides,
you can click on the documents,
and then read more about it,
and I want to thank you all
for attending the webinar.
And we hope to see you soon
again on our next webinar.
Thank you very much.