Central Bank

UAE central bank signs deal for CBDC strategy

The CBDC strategy was first unveiled in February as part of the central bank’s program to position the UAE as a global financial hub.

The Central Bank of the United Arab Emirates (CBUAE) is inching closer to fully launching its central bank digital currency (CBDC) — the digital dirham — for domestic and cross-border payments.

According to an announcement on March 23, the CBUAE signed an agreement with Abu Dhabi’s G42 Cloud and digital finance services provider R3 to be the infrastructure and technology providers of the CBDC implementation.

In addition to addressing the challenges of domestic and cross-border payments, the central bank says it will also help boost financial inclusion as the country looks to become a “cashless society.”

The first phase of the CBDC strategy consists of the soft launch of “mBridge,” which facilitates CBDC transactions for international trade, along with proof-of-concept work for bilateral CBDC bridges with India, and domestic CBDC issuance for wholesale and retail use. This stage is expected to be completed in the next 12–15 months, the announcement said.

During the initial unveiling of the strategy on Feb. 12, the CBUAE governor Khaled Mohamed Balama said:

“The launch of our CBDC strategy marks a key step in the evolution of money and payments in the country. CBDC will accelerate our digitalization journey and promote financial inclusion.”

While the UAE looks to push the boundaries of CBDC use cases, debates over the asset’s viability in the United States continue.

Related: India, UAE to explore CBDC bridge to facilitate trade, remittances without USD

On March 21, Republican Senator Ted Cruz introduced a bill to block the U.S. Federal Reserve from issuing a “direct-to-consumer” CBDC over fears of it becoming a spying tool.

Meanwhile, a study released by a division of the U.S. Treasury claimed that integrating a CBDC into the economy would destabilize banks, calling the harm it could cause to banking “significant” in times of stress.

Nigeria, on the other hand, Nigeria is witnessing increased adoption of its eNaira, as paper currency faces severe shortages. The total number of CBDC wallets in Nigeria sits at 13 million, growing more than 12 times compared with October 2022.

As of March, 114 countries, representing over 95% of the global GDP, are exploring CBDCs. 65 nations are already in advanced stages, according to the U.S.-based think tank, the Atlantic Council.

Nigeria CBDC adoption spikes as fiat currency shortage grip the nation

The acute cash shortage in Nigeria was due to the central bank’s decision to replace older bank notes with bigger denominations amid rising inflation.

Nearly 18 months after launching its in-house central bank digital currency (CBDC), the eNaira, Nigeria is seeing increased adoption in the CBDC as national fiat reserves face severe shortages. 

The acute cash shortage in Nigeria was due to the central bank’s decision to replace older bank notes with bigger denominations amid rising inflation. While developing nations were among the first to acknowledge the importance of a CBDC in revamping fiat capabilities, the idea is yet to materialize.

However, the lack of physical cash forced Nigerians to use the eNaira. In a country where cash accounts for about 90% of transactions, the value of eNaira transactions increased 63% to 22 billion nairas ($47.7 million), revealed a Bloomberg report.

Moreover, according to Godwin Emefiele, governor of the Central Bank of Nigeria, the total number of CBDC wallets grew more than 12 times compared with October 2022 and is currently at 13 million.

Magazine: Unstablecoins: Depegging, bank runs and other risks loom

The demonetization reduced the circulating cash supply from 3.2 trillion nairas to 1 trillion nairas. Compensating for this decline, Nigeria minted over 10 billion eNairas. In addition, eNaira payouts in government initiatives and social schemes also contribute to the increase in CBDC’s adoption.

For developing countries, CBDCs present a way to overcome challenges presented by the fiat economy, which includes reducing operating costs and strengthening Anti-Money Laundering initiatives.

“The eNaira has emerged as the electronic payment channel of choice for financial inclusion and executing social interventions,” concluded Emefiele.

Related: eNaira is ‘crippled‘: Nigeria in talks with NY-based company for revamp

Amid the cash crunch, Nigerians have been presented with another option for procuring cryptocurrencies. MetaMask’s parent firm ConsenSys recently announced a new MoonPay integration, which allows Nigerians to purchase crypto via bank transfers.

Screenshot showing option to buy crypto using fiat. Source: ConsenSys

As shown in the above screenshot, the new feature is available within the MetaMask mobile and Portfolio DApp, significantly simplifying buying crypto without using credit or debit cards in Nigeria.

More than 186 US banks well-positioned for collapse, SVB analysis reveals

Rising interest rates, which brought down the U.S. banking system’s asset market value by $2 trillion, combined with a large share of uninsured deposits at some U.S. banks, threaten banks’ stability.

The perfect mix of losses, uninsured leverage and an extensive loan portfolio, among other factors, resulted in the fall of Silicon Valley Bank (SVB). Comparing SVB’s situation with other players revealed that nearly 190 banks operating in the United States are potentially at risk of a run.

While SVB’s collapse came as a reminder of the fragility of the traditional financial system, a recent analysis by economists showed that a large number of banks are at risk from uninsured deposit withdrawals. It read:

“Even if only half of uninsured depositors decide to withdraw, almost 190 banks are at a potential risk of impairment to insured depositors, with potentially $300 billion of insured deposits at risk.”

Monetary policies penned down by central banks can hurt long-term assets such as government bonds and mortgages, creating losses for banks. The report explains that a bank is considered insolvent if the mark-to-market value of its assets — once uninsured depositors are paid — is insufficient to repay all insured deposits.

Largest insolvent institutions if all uninsured depositors run. Source: papers.ssrn.com

The data in the above graph represents the assets based on bank call reports as of Q1, 2022. Banks in the top right corner, alongside SVB (with assets of $218 billion), have the most severe asset losses and the largest percentage of uninsured deposits to mark-to-market assets.

The recent rise in interest rates, which brought down the U.S. banking system’s asset market value by $2 trillion, combined with a large share of uninsured deposits at some U.S. banks, threatens banks’ stability.

“Recent declines in bank asset values significantly increased the fragility of the US banking system to uninsured depositors runs,” the study concluded.

Related: Breaking: SVB Financial Group files for Chapter 11 bankruptcy

As the federal government steps in to protect the depositors of SVB and Signature Bank, President Joe Biden assured no impact on taxpaying citizens.

However, one user pointed out to Biden on Twitter that “everything you do or touch costs the taxpayer!”

Banking crisis: What does it mean for crypto?

Cointelegraph breaks down the main events that led to the collapse of Silvergate, SVB and Signature Bank and explains what this all could mean for crypto.

Last week’s rapid collapse of Silvergate, Silicon Valley Bank (SVB) and Signature Bank has highlighted the fragility of the traditional banking sector while depriving crypto of its primary fiat on-ramps in the United States.

Most observers agree that the collapse of SVB, like the one of Silvergate, was largely the result of unfavorable market conditions and poor risk management. 

The shutdown of Signature was more controversial. According to multiple sources, the bank was not facing insolvency and had largely stabilized its capital outflow when U.S. regulators decided to take it over. Many in the crypto industry saw it as a political decision aimed at pushing crypto out of the United States.

Silvergate and Signature were the two leading financial institutions providing banking services to crypto companies in the United States. Following their shutdowns, it will be far more challenging for crypto companies to interact with the dollar-based financial system.

In the meantime, the collapse of SVB seems to have caused a ripple effect across the global banking sector. Credit Suisse, the second-largest Swiss financial institution, is going through a significant crisis that required the Swiss Central Bank to intervene with a $54 billion lifeline. 

If you want to know more about the ongoing banking crisis and how it affects cryptocurrencies, check out Cointelegraph’s latest video report on YouTube, and don’t forget to subscribe! 

CBDCs could provide smooth cross-border payments, says Bank of Israel official

The adviser to the deputy governor and CBDC project manager spoke at Fintech Week Tel Aviv on how a recent CBDC experiment proved efficient in cross-border transactions.

At Fintech Week Tel Aviv 2023, Yoav Soffer — the adviser to the deputy governor at the Bank of Israel — touched on the topic of central bank digital currencies (CBDCs) as an efficient cross-border payment option.

The talk came after the Bank for International Settlements concluded its research on international retail and remittance payments via CBDCs between the central banks of Israel, Norway and Sweden. The BIS project is called “Project Icebreaker.”

Soffer, who is also the project manager for the CBDC program for the Central Bank of Israel, said that while domestic payments in Israel have become “very easy, convenient and cheap,” the same is not true for payments outside the country.

“Cross-border payments are often perceived to face challenges of high costs, low speed, limited access and insufficient transparency, according to the Financial Stability Board.”

Soffer touched on the result of an example transaction that took less than two minutes. Moreover, he stressed that this model would significantly reduce the costs of sending funds internationally and is “much more competitive in terms of the foreign exchange transaction.”

Yoav Soffer speaking at Fintech Week Tel Aviv 2023. Source: Cointelegraph

He continued to say that the technological requirements for countries to join the model are very limited, and once a prototype is built, onboarding should essentially be a domino effect.

“Once you build it for three countries, you could build it for 180 countries. Therefore, it’s also very scalable.”

However, he did say that in employing such a program, ways to provide liquidity for CBDC providers would need to be considered, as well as the integration of policies. Soffer said privacy is another major consideration that the BIS team was aware of during the project.

Related: SWIFT moves to next phase of CBDC testing after positive results

Despite over a hundred countries looking into the possibilities of CBDCs, the sentiment around these centralized digital currencies is mixed. They have useful capabilities, such as efficient cross-border transactions, though some say they could threaten consumers’ future.

Former CFTC Chair Christopher Giancarlo recently stressed that CBDCs should protect privacy, not be a surveillance tool, as many fear. United States Representative Tom Emmer also commented that they could be “easily weaponized” to spy on U.S. citizens.

Banks collapsing; stablecoins depegging — What is happening? Watch The Market Report live

On this week’s episode of The Market Report, Cointelegraph’s resident experts explain what is going on with banks collapsing, stablecoins depegging and what you should do to stay safe.

This week on The Market Report, the resident experts at Cointelegraph discuss all the details regarding the latest bank collapse and the USD Coin (USDC) depeg.

We kick things off with this week’s top stories

Silicon Valley Bank collapse: Everything that’s happened until now

The sudden collapse of Silicon Valley Bank (SVB) has quickly unfolded over the last week, depegging stablecoins, leading regulators in the United States and the United Kingdom to prepare emergency plans and raising fears among small businesses, venture capitalists and other depositors with funds stuck at the California tech bank. Our experts here at Cointelegraph Markets & Research break down everything that has happened so far, so you’re up to date with all the latest developments. 

‘Nobody left to bank crypto companies’ — Crypto Twitter reacts

Crypto companies could find it harder to access traditional banking partners with the loss of two major crypto-friendly banks in less than a week, according to some in the crypto community. These banks were seen as important banking pillars for the crypto industry. According to insurance documents, Signature Bank had $88.6 billion in deposits as of Dec. 31. Crypto Twitter believes that there is no one left to bank crypto companies in the U.S., but is that really the case? Are there no other banks willing to work with crypto companies? Our experts break it down for you.

Bitcoin price nears $25K as analysts place bets on CPI impact

Data from Cointelegraph Markets Pro and TradingView showed BTC/USD making monthly highs of $24,917 on Bitstamp overnight. The pair remained buoyant after the impact of multiple U.S. bank closures sent crypto markets skyrocketing. Now, all eyes were temporarily on the Consumer Price Index (CPI) print for February when it came to short-term BTC price action. A classic crypto volatility catalyst in itself, last month, CPI showed an unwelcome slowdown in inflation abating; this, in turn, gave rise to fears that the Federal Reserve would keep interest rates higher for longer. However, as the banking crisis has overshadowed the inflation debate, expectations are starting to pivot to the Fed abandoning rate hikes altogether. How will Bitcoin (BTC) and the crypto market as a whole react if that were to happen?

Our experts cover these and other developing stories, so make sure you tune in to stay up-to-date on the latest in the world of crypto.

Lastly, we’ve got insights from Cointelegraph Markets Pro, a platform for crypto traders who want to stay one step ahead of the market. Our analysts use Cointelegraph Markets Pro to identify two altcoins that stood out this week, so make sure to tune in to find out which ones made the cut.

Do you have a question about a coin or topic not covered here? Don’t worry — join the YouTube chat room and write your questions there. The person with the most interesting comment or question will have a chance to win a one-month subscription to Markets Pro worth $100.

The Market Report streams live every Tuesday at 12:00 pm ET (5:00 pm UTC), so be sure to head on over to the Cointelegraph Markets & Research YouTube page and smash those Like and Subscribe buttons for all our future videos and updates.

BIS wraps exploration project on retail CBDC payment system

The bank concluded that a “hub-and-spoke” model between CBDC domestic systems could “reduce settlement and counterparty risk” and complete cross-border transactions in seconds.

The Bank for International Settlements, or BIS, has reported it has concluded a project exploring international retail and remittance payments use cases for central bank digital currencies, or CBDCs, with the central banks of Israel, Norway and Sweden.

In a March 6 report, the BIS said it had finished Project Icebreaker, an initiative involving the bank’s Innovation Hub Nordic Centre that tested key functions and the technological feasibility of interlinking domestic CBDC systems through the Central Bank of Norway, the Bank of Israel, and Sveriges Riksbank. According to the report, the BIS concluded that a “hub-and-spoke” model between domestic systems could “reduce settlement and counterparty risk by using coordinated payments in central bank money and complete cross-border transactions within seconds.”

“Without a hub-and-spoke approach, each [retail CBDC, or rCBDC] system would need to make individual specific network and infrastructure configurations to communicate with other rCBDC systems,” said the report. “Communication between these rCBDC systems may not be standardised via a common interface and would instead be a bespoke integration between each pair of rCBDC systems. This would be not only complex to support and maintain but could also introduce cyber security risks.”

The report could provide the groundwork for a cross-border payment system should the central banks of Israel, Norway and Sweden move forward with issuing a digital shekel, digital krone, and digital krona, respectively. In October, the bank reported that a CBDC pilot involving the central banks of Hong Kong, Thailand, China and the United Arab Emirates was “successful” after a month-long test facilitating $22 million worth of cross-border transactions.

Related: Some central banks have dropped out of the digital currency race

In 2020, the Central Bank of the Bahamas became the first in the world to make a central bank-issued CBDC — the Sand Dollar — available to all residents of the island nation. Other countries have been moving forward on large-scale trials of digital currencies, including China, with the nation’s central bank reportedly distributing millions of digital yuan over the Lunar New Year holidays.

Iran completes pre-pilot phase of central bank digital currency

The Central Bank of Iran progresses with CBDC development in anticipation of a visit by the Bank of Russia’s governor Elvira Nabiullina.

Iran is moving forward with its central bank digital currency (CBDC) plans, completing preliminary research for the launch of a potential digital rial.

The Central Bank of Iran (CBI) has completed a pre-pilot phase in the development of Iran’s CBDC, according to an official statement by CBI’s research arm, the Monetary and Banking Research Institute (MBRI).

Mohammad Reza Mani Yekta, head of the CBI office for supervising payment systems, announced the news at the ninth annual conference on electronic banking and payment systems on Feb. 20. He noted that Iran’s central bank plans to increase the scope of the CBDC pilot in the country’s payment system, but doesn’t want to rush its implementation.

“The pre-pilot phase ended successfully with valuable achievements. The project will soon be launched in other ecosystems and will be used by more users,” Mani Yekta stated.

The executive pointed out that the rules governing a potential digital rial will align with those established for rial banknotes. Mani Yekta also noted that a digital rial would be distributed among individuals and banks, with the CBDC infrastructure recreating some blockchain features.

Mani Yekta reportedly said that ten banks in Iran have applied to join the digital rial project. Banks like Bank Melli, Bank Mellat and Bank Tejarat were involved in the experimental phase. All banks and credit institutions in Iran are reportedly expected to start offering electronic wallets for using the upcoming digital currency.

As previously reported, the CBI started planning to launch a CBDC pilot in January 2022, following years of initial research since 2017. The regulator reportedly started rolling out a CBDC pilot in September 2022, aiming to improve financial inclusion and compete with global stablecoins.

Related: Australian central bank to launch ‘live pilot’ of CBDC in coming months

Iran’s digital rial project, called the “crypto rial,” is pegged to the national currency, the Iranian rial, at a 1:1 ratio. The digital currency reportedly runs on a platform known as Borna, which was developed using Hyperledger Fabric, the open-source enterprise blockchain platform established by United States technology giant IBM.

The news comes amid the Iranian authorities preparing to hold an official meeting with the Bank of Russia’s governor Elvira Nabiullina, who is expected to visit Iran in the near future. Russia and Iran have reportedly been working together to create a gold-backed stablecoin that would serve as a payment method in foreign trade.

Pakistan banks agree on blockchain-based KYC system development

The blockchain-based national eKYC banking platform aims to strengthen Anti-Money Laundering capabilities while countering terror financing.

The Pakistan Banks’ Association (PBA) — a group of 31 traditional banks operating in Pakistan — signed off on developing a blockchain-based Know Your Customer (KYC) platform. 

On March 2, the PBA signed the project contract to develop Pakistan’s first blockchain-based national eKYC banking platform, as reported by the Daily Times. The move aims to strengthen Anti-Money Laundering capabilities while countering terror financing — an initiative led by the State Bank of Pakistan (SBP).

The member banks include international establishments such as the Industrial and Commercial Bank of China, Citibank and Deutsche Bank. Moreover, the blockchain platform will improve operational efficiencies, primarily aimed at improving customer experience during onboarding.

The Avanza Group has been tasked to develop the blockchain-based eKYC platform named “Consonance,” which will be used by member banks to standardize and exchange customer data via a decentralized and self-regulated network. However, the customer details will be shared based on consent — allowing banks to assess existing and new customers.

Related: India explores offline functionality of CBDCs — RBI executive director

Joining other countries in the race to develop a central bank digital currency (CBDC), Pakistan recently signed new laws to ensure the launch of a CBDC by 2025.

Global CBDC initiatives overview. Source: Atlantic Council

The SPB will issue licenses to electronic money institutions for CBDC issuance. “These landmark regulations are a testament to the SBP’s commitment toward openness, adoption of technology and digitization of our financial system,” said Deputy Governor of SBP Jameel Ahmad.

India explores offline functionality of CBDCs — RBI executive director

In addition to offline functionality, RBI is gauging CBDC’s potential for cross-border transactions and linkage with legacy systems of other countries.

India’s recently launched in-house central bank digital currency (CBDC) — the digital rupee — is now being tested for offline functionality, revealed Ajay Kumar Choudhary, executive director of the Reserve Bank of India (RBI).

The RBI — India’s central bank and regulatory body — launched the wholesale segment pilot for the digital rupee on Nov. 1, 2022, onboarding 50,000 users and 5,000 merchants for real-world testing. As of Feb. 25, around $134 million and 800,000 transactions have been completed via wholesale CBDCs.

Building on this progress, Choudhary said the RBI is looking at the CBDC’s offline functionality. Speaking to CNBC TV18, he stated the RBI is gauging the CBDC’s potential for cross-border transactions and linkage with legacy systems in other countries. He added:

“We are eagerly looking forward to private sector and fintechs’ participation in CBDC. We will see their contribution, especially on offline and cross-border CBDC transactions.”

Moreover, speaking on behalf of the RBI, Choudhary said the CBDC would soon become the medium of exchange and needs all features of physical currency, including anonymity.

India’s motivation for launching the CBDC was to improve regional financial inclusion and spearhead the digital economy. Choudhary also told CNBC TV18 that CBDC would eventually act as a replacement for cryptocurrencies.

Related: Crypto ads and sponsors banned from women’s cricket league in India

On Feb. 21, India’s national payment network, the unified payments interface (UPI), expanded its services to Singapore.

The UPI PayNow integration allows citizens from India and Singapore to send money across borders quickly.

Initially, four major Indian banks — the State Bank of India, Indian Overseas Bank, Indian Bank and ICICI Bank — will facilitate outgoing remittances. Axis Bank and DBS Bank India will facilitate incoming remittances. Singapore’s DBS Bank and Liquid Group will provide the service to users in the region.