Urszula McCormack, Dale Rayner, Max Allan, Shannon Hatheier and Emily Fox look at the latest developments in central bank digital currencies (CBDCs) worldwide.
In our latest update on what’s happening in the world of CBDCs, there’s a strong theme of cross-border connections, research and progressive pilots.
In Asia, the HKMA is simplifying e-CNY usage for Hong Kong residents and probing the potential of a retail CBDC with its e-HKD Pilot Programme, while the Monetary Authority of Singapore is facilitating cross-border e-CNY transactions for tourists (among other developments).
In Australia, the Payments System Board has discussed an ongoing program of international and domestic research on CBDCs and a draft paper, to be jointly published with the Australian Treasury in September, that will provide a stocktake and roadmap on domestic CBDC research priorities.
Further north (Switzerland, to be precise) the Bank for International Settlements (BIS), the Swiss National Bank and SIX have concluded their ‘Project Helvetia III’ pilot, exploring wholesale CBDCs for seamless transaction settlements with tokenised assets.
Spanning multiple jurisdictions, the collaborative group of central banks involved in Project mBridge also continue to work with the BIS to forge new frontiers in cross-border payments, alongside private sector participants.
Along with other developments in Europe and the UK, the transformative shift continues across the global digital currency landscape.
Read on for more!
Want to know more about the potential for CBDCs to reshape the payments industry? Watch KWM Partner Urszula McCormack in conversation with Global Digital Finance co-chair Greg Medcraft at our KWM Digital Future Summit (access it in our On Demand library).
Will Switzerland lead the way in settling transactions with tokenised assets?
The pilot involving BIS and the Swiss National Bank came to an end in July, as planned. Project Helvetia – in its third phase – piloted the use of a wholesale CBDC on a regulated third-party platform to settle transactions with tokenised assets.
‘This approach eliminates barriers in today’s siloed financial market infrastructures. At present, financial assets and central bank money are usually held on separate systems that are linked in order to synchronise payments and asset transfers. With wholesale CBDC as piloted in Helvetia III, assets and central bank money are instead closely integrated. This reduces the need for synchronisation and reconciliation and facilitates programmability.’ Swiss National Bank chairman of the governing board Thomas Jordan
The Swiss National Bank is now investigating alternative approaches to settling tokenised asset transactions to understand their respective risks and benefits before deciding on a path forward.
e-CNY wallets get easier……
The Hong Kong Monetary Authority (HKMA) and the Peoples Bank of China expanded the trial of e-CNY in Hong Kong. Customers in Hong Kong can now set up e-CNY accounts with their Hong Kong phone numbers, for use in cross-border payments. They can also top up e-CNY wallets using the Faster Payment System (FPS) through 17 retail banks – the first linkage of the FPS with a CBDC system.
Across the South China Sea to Southeast Asia, the Monetary Authority of Singapore (MAS) is piloting a program to allow tourists from China and Singapore to use e-CNY in both countries.
…and e-HKD moves to phase 2
HKMA has launched the 2nd phase of its e-HKD Pilot Programme. Phase 2 will involve a more in-depth look at potential use cases for a retail CBDC, including more testing of the pilot programs from Phase 1 and exploring new use cases. Some of the key areas of focus include how a retail CBDC could add unique value, with a particular focus on programmability, tokenisation and atomic settlement (that is, settlements that are instantaneous, secure and irreversible).
HKMA has also announced the development of Project Ensemble; a new wholesale CBDC project. This project will pilot the facilitation of instantaneous, large-value interbank settlements of tokenised money, and consider the financial market infrastructure needed as support.
Singapore’s settlement innovation
The MAS is also piloting the live issuance of wholesale CBDCs to instantaneously settle payments across commercial banks. The MIS previously simulated the issuance of wholesale CBDCs in test environments and is now expanding its pilot to include local banks, allowing retail customers to use tokenised bank liabilities to transact with merchants.
Continued research program for CBDCs in Australia – and a paper to watch out for…
In Australia, the Payment Systems Board is one of two boards of the Reserve Bank of Australia (the other is the Reserve Bank Board). The Payments System Board is responsible for the Reserve Bank of Australia’s payments system policy, including policy in relation to clearing and settlement (CS) facilities.
The minutes of the Payments System Board’s August meeting noted that members discussed:
- the ongoing program of international and domestic research on CBDCs, and
- a draft paper, to be jointly published with the Australian Treasury in September, that will provide a stocktake and roadmap on Australia’s domestic CBDC research priorities.
The minutes also noted that members were supportive of the plan for the research program to take into account a wide range of views and perspectives on the future of money.
Further, the minutes note that the Reserve Bank of Australia is exploring different settlement models for tokenised assets, and that the work on wholesale tokenised markets is now moving into a more applied phase and is likely to involve the development and testing of prototypes with industry partners.
Watch out for that paper in September.
Digital euro moves closer
The European Central Bank (ECB) has shared an update on its digital euro work. Part way through the preparation phase, the ECB has outlined that it expects to make a decision on whether to issue a digital euro in October 2025. The ECB completed the investigation phase in 2021 and entered a two-year preparation phase in October 2023. The aim is to ‘lay the foundations for the potential issuance of a digital euro’. This phase will involve foundational work, including finalising the rulebook and choosing platform providers. This is a step on the way to making a decision about launching a retail CBDC. Several key benefits of a retail CBDC were highlighted, including that it is free to use for digital payments, can be available offline and allows a high level of privacy.
‘More than just a payment option, a digital euro would bring Europeans closer in an increasingly digital and unstable world. It would make our lives easier, while preserving our freedom of choice.’ European Central Bank executive board member Piero Cipollone
Counting the benefits of a digital pound
The Bank of England has been conducting a variety of experiments on proofs of concept as a part of the design phase for a digital pound.
The Bank of England (BoE) and HM Treasury are still in the design phase for a digital pound, after consultations ended in 2023 (attracting more than 50,000 responses!). The BoE’s response, released earlier this year, emphasised the importance of maintaining privacy and states that the regulators won’t have access to people’s data. It also emphasises that cash will remain available for people who prefer it. The design phase will run for 2 to 3 years, testing ‘real world’ scenarios, before any decision is made as to whether to pursue a digital pound.
Private sector invited to test cross-border payments
Finally, the BIS announced a new milestone for Project mBridge, a global effort to use blockchain to enable instant cross-border payments and settlements. The project is asking private sector companies to propose new use cases to further test and develop the platform and highlight its potential for cross-border payments, having reached its minimum viable product stage.
Briefly, Project mBridge is a collaboration between the BIS Innovation Hub, the Bank of Thailand, the Central Bank of the United Arab Emirates, the Digital Currency Institute of the People’s Bank of China, the Hong Kong Monetary Authority and most recently the Saudi Central Bank. An objective of the project is to ‘tackle some of the key inefficiencies in cross-border payments, including high costs, low speed and operational complexities’ as well as addressing financial inclusion, through the development of a multi-CBDC platform based on distributed ledger technology – the mBridge Ledger.
Interoperability and further development are also being factored in – the platform is stated to be compatible with the ‘Ethereum Virtual Machine’, enabling potential additional technology solutions and use cases to emerge. The initiative aims to revolutionise global financial services by enhancing interoperability and optimising operations.
Want to know the potential benefits of interoperability? To give a flavour, BIS provides this statistic in an mBridge brochure: open-banking API transactions in the UK increased to more than 1.2 billion in August 2023, from 81 million in July 2019, after interoperability and standardisation.
That’s all for this update! We are involved in several CBDC and tokenisation projects and we love nothing more than helping our clients experiment, build new infrastructure and drive innovation. Subscribe to KWM Pulse using the button below for more
