Central Bank Digital Currencies

[Feltima]

https://www.swift.com/news-events/pr...kenised-assets

As you can see from the press release, SWIFT "made" a breakthrough on interoperability between CBDCs using R3's Corda technology. Per SWIFT, nine out of ten central banks are working on CBDCs. There are entities within most major governments that are doing this which are interspersed with leaders from the DLT/Blockchain industry such as the US Faster Payments Council, the Digital Pound Foundation, and I can't remember the name off the top of my head for the digital euro, but it exists as well.

What are CBDCs?

Central bank digital currencies, to put simply, are cryptocurrencies. The major difference here is that they are cryptocurrencies issued by sovereign nations. Programmable money, which will allow central banks unprecedented control over monetary policy. These tools are a big deal because it will be akin to business going from analog to digital. Since the advent of integrated circuitry, we've seen an exponential increase in productivity. This is going now going to be applied to finance and macroeconomics. See, our current global financial system is based on technology from the 70s. Due to the primitive and arcane language initially used to build SWIFT, we have not been able to upgrade. No one really understands it enough to actually upgrade the core system. Instead, we've built around it for decades.

This is why it takes three days for transactions to settle. SWIFT sends the TX message to receiving bank of X TX, the recipient bank acknowledges, and credits the account, however, nostro vostro, a pre-funding account with over 30 trillion USD, has to move the money to facilitate the TX. This takes three days. With CBDCs, instead of sending a TX message, and dealing with the unwieldy nostro vostro, CBDCs will move the value itself. So the message and the TX become one and the same.

These tools would also have allowed a FED back in 2020 to realize that the substantial quantitative easing and increase in money supply would have lead to rampant inflation. So, instead of doing unmitigated QE for years, they would have had a more nuanced way of addressing keeping the economy afloat throughout the pandemic. The central banks currently have a sledgehammer to address things, however, CBDCs would give them all a scalpel. This technology will revolutionize finance in ways that we can scarcely begin to imagine. In the future, per the press release, all assets, whether it stocks or real estate, will be tokenized on a distributed ledger.

https://www.federalreserve.gov/publi...sion-paper.htm

If you're a zoomer, odds are you will have a profoundly hard time buying a home by the time you're of age when people typically begin buying homes. So instead, there will be fractional real estate, in which you can buy portions of a property with others. So, instead of one single entity owning a high rise in downtown NYC or Chicago, instead, thousands or even millions of people will own portions of a single building.

This isn't science fiction, it's not up for debate, and it's coming, the question is, what will it look like in your country? That depends on your government. If you live in China, the digital yuan will allow CCP to control every aspect of your life. They already have a social credit score system. Perhaps you said something that was considered anti-CCP, your social credit score will diminish, and you may not be able to make certain purchases. It's not too different from the credit system, however, it will be to a degree of nuance that will allow governments to control nearly every aspect of your personal life. This is an extreme version of a "retail CBDC", meaning that it's meant for individuals

If you live in the US, the digital dollar will probably resemble something very different. Per the FED, the US is interested in retaining the privacy of its citizens and will resemble the dollar as we know it today. The US is more interested in the wholesale aspect of CBDCs in the context of monetary policy. This could be very different in the EU/UK in which the police already attempts to regulate speech. The digital euro and pound may be more in between the digital dollar and digital yuan if they decide they wish to regulate society with more nuance. I think this is likely due to the geopolitical and economic situation Europe faces. There will be civil unrest, and controlling people's financial access may be a great way to mitigate that, without expending resources on further militarizing the police force.

This is only the tip of the iceberg for this, there are corporations connected to this in ways you wouldn't believe at face value, however, if you want to go down that rabbit hole, research the company that SWIFT mentions is responsible for making this breakthrough happen: R3/CORDA. If nine out of ten central banks are building CBDCs, in tandem with the IMF and SWIFT, then that means you may want to consider the implications of that for yourself depending on your government.

TLDR: Your money is about to get smart, whether you like it or not.



Distributed ledger, "consensus based", you can count the cryptocurrencies that are Proof of Consensus on one hand.

[PC2]

My thoughts:
-They made cryptocurrencies for de-centralization but now governments might end up using it for total centralization, which is weird.

-I'd prefer it if this tech stayed in the private sector but at the end of the day it is the government's job to prepare for potential paradigm shifts.

-Governments might try to monopolize this new tech but I don't think they will be able to and will have to be tolerant of multiple competing systems.

-I'm not worried that Western liberal democratic governments will abuse this in the same way that an authoritarian state like China would use it. If our governments try to abuse it then my guess is that we would modernize our civil rights laws to include financial privacy and we would limit what the government can do with this new tech and demand government transparency when it is necessary.

[Draco-Onis]

If you're a zoomer, odds are you will have a profoundly hard time buying a home by the time you're of age when people typically begin buying homes. So instead, there will be fractional real estate, in which you can buy portions of a property with others. So, instead of one single entity owning a high rise in downtown NYC or Chicago, instead, thousands or even millions of people will own portions of a single building.

I hate to break this to you but this has been going on already for decades, fractional ownership of properties isn't a new thing.

Per the FED, the US is interested in retaining the privacy of its citizens and will resemble the dollar as we know it today.

You may want to make it less obvious that you have no idea what you are talking about.

[Feltima]

My thoughts:
-They made cryptocurrencies for de-centralization but now governments might end up using it for total centralization, which is weird.

-I'd prefer it if this tech stayed in the private sector but at the end of the day it is the government's job to prepare for potential paradigm shifts.

-Governments might try to monopolize this new tech but I don't think they will be able to and will have to be tolerant of multiple competing systems.

-I'm not worried that Western liberal democratic governments will abuse this in the same way that an authoritarian state like China would use it. If our governments try to abuse it then my guess is that we would modernize our civil rights laws to include financial privacy and we would limit what the government can do with this new tech and demand government transparency when it is necessary.

-That is the way of things. Banks and hegemonies were never going to let people divorce from their sovereign currency if they can help it.

-Right, there will still be private cryptocurrencies. I don't think it's all doom and gloom unless you live in a country that is or has been keen on banning crypto like India or China.

-Agreed, per the paper I linked from the FED that outlines their expectations, I don't think it's a major concern.

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I hate to break this to you but this has been going on already for decades, fractional ownership of properties isn't a new thing.



You may want to make it less obvious that you have no idea what you are talking about.

Lol, no you don't. I'm aware, but not on the scale that is being proposed.


And you may want to read the paper from the federal reserve that I linked before you make snide, ad hominem comments. At least say something of substance explaining how you came to that conclusion.

[Draco-Onis]

Lol, no you don't. I'm aware, but not on the scale that is being proposed.

It's irrelevant what is being proposed the same thing will happen that is happening now zoomers will move back in with their parents continuing the trend unless we start electing politicians that give a shit about regular people.

And you may want to read the paper from the federal reserve that I linked before you make snide, ad hominem comments. At least say something of substance explaining how you came to that conclusion.

Let me give you a hint the federal reserve, the government even the courts will swear up and down about privacy but when it comes to enforcement and laws on the books it's a joke. We don't have to be hypothetical digital money already exist in the form of loans, credit cards and other banking features where money is not created. The privacy for that money is laughable there's no reason to think they will start now.

[Feltima]

It's irrelevant what is being proposed the same thing will happen that is happening now zoomers will move back in with their parents continuing the trend unless we start electing politicians that give a shit about regular people.



Let me give you a hint the federal reserve, the government even the courts will swear up and down about privacy but when it comes to enforcement and laws on the books it's a joke. We don't have to be hypothetical digital money already exist in the form of loans, credit cards and other banking features where money is not created. The privacy for that money is laughable there's no reason to think they will start now.

I wasn't insinuating that this is going to be utopic, the average person may not be able to take advantage of this, however, it could open more opportunities for social mobility. We probably won't know till we cross that bridge, just as hardly anyone saw what the internet would look like in the late '90s. If you mentioned google, facebook, social media in general, etc. You'd be called a crazy person.


Ah, so what you meant is that the current debt system is trash, which it is, and that we don't have true privacy I, agree. As I stated in my OP, that the current credit system is akin to a social credit score system, but with far less nuance. I'm not saying the FED is going to give us unmitigated privacy. What I'm saying is that we'll continue to "enjoy" what we do today for the most part. Relative to a system like China, we have profoundly more privacy.

[Muzjhath]

I hope that no country will switch 100% to a digital ledger system that can't work analogue.
While it's quicker that's also a huge security risk.

Most money isn't printed in bills as it is. Most of it is in spreadsheets.

Should those spreadsheets be updated and be more efficient for global society? Yeah, probably.
Should they be fully digital and not translatable to be analogue? No, that's stupid. Hard Copy is best Copy. The question will be how often that is updated.

[Biglog]

This isn't nearly as big of a deal as this article probably makes it out to seem. Swift is all on the backend and is already digital now. That processing hasn't been done analog for over 40 years. They are not going to use public cryptocurrency or anything like that, and it isn't going to be a savior for those prices. The banks have absolutely no interest in that crypto for un-trackable transactions and that's a non-starter. However banks have known that (private) blockchain could speed up this transaction processing a bit though and they've been looking at that for quite a while.

China was already going to implement it's own version of Swift anyway. And Swift isn't anything consumers deal with directly. Our bank transactions use it, but it is all transparent to consumers. The only thing we might notice is our bank transactions posting more quickly. This isn't changing the currency we use or how consumers do normal business. It sounds like it may make it easier for a bank to reject or track a transaction, but they've been able to do that for a long time already.

If you want to know what banking was like before digital, look at an old bank if there are any around in your area left with 10+ drive up windows, probably not being used anymore. Those were common a few decades ago when everyone was paid by and deposited paper checks, so payday was an hour wait at the bank in huge lines waiting to deposit them. Sometimes you'll see remnants of them still around.

[Feltima]

This isn't nearly as big of a deal as this article probably makes it out to seem. Swift is all on the backend and is already digital now. That processing hasn't been done analog for over 40 years. They are not going to use public cryptocurrency or anything like that, and it isn't going to be a savior for those prices. The banks have absolutely no interest in that crypto for un-trackable transactions and that's a non-starter. However banks have known that (private) blockchain could speed up this transaction processing a bit though and they've been looking at that for quite a while.

SWIFT transactions aren't actually digital. They still use freaking tape servers because the core system is so old. If it's faster to hop on a plane and fly you a suitcase full of money, it is not digital. SWIFT TXs are not complete transactions. They only send messages, this is expensive and requires over thirty trillion dollars locked in nostro vostro to pre-fund the transactions. It will take over three days to settle completely. This is expensive and error-prone. This advent would reduce the cost of transactions to a fraction of what they are now, as well as move from being a TX message, to actually being a complete transaction itself. We're talking about going from 72 hours to settle a transaction, to settling up to a trillion transactions per second. That's a game-changer, as big as going from vacuum tubes to transistors.

It's really been that long, the core system is the same system from the seventies.

By private, I strictly meant non-sovereign cryptocurrencies. Not private ledgers like Monero.

China was already going to implement it's own version of Swift anyway. And Swift isn't anything consumers deal with directly. Our bank transactions use it, but it is all transparent to consumers. The only thing we might notice is our bank transactions posting more quickly. This isn't changing the currency we use or how consumers do normal business. It sounds like it may make it easier for a bank to reject or track a transaction, but they've been able to do that for a long time already.

Right, SWIFT is describing interoperability for CBDCs being solved by R3's Corda technology. Without that, how would you get the digital yuan to talk to the digital dollar? It would require the US and China to share code and work together to make them interoperable, however, they still need to make each of their CBDCs interoperable with every single other CBDC. That goes for every other central bank doing this (nine out of ten). You extrapolate this to a global network topology, and you can see it would be a convoluted mess with many, many points of failure, as well as a less secure global network. Not to mention the political capital to get all the world's nations to trust each other to make this work, virtually impossible. Corda solves this by achieving interoperability and being trustless, making a topology of walled gardens interact with a neutral over-network possible. This is a major breakthrough, CBDCs are not possible without interoperability solved via a neutral asset for settlement.

If you want to know what banking was like before digital, look at an old bank if there are any around in your area left with 10+ drive up windows, probably not being used anymore. Those were common a few decades ago when everyone was paid by and deposited paper checks, so payday was an hour wait at the bank in huge lines waiting to deposit them. Sometimes you'll see remnants of them still around.

Ha, on the backend, nothing has really changed. An app may have replaced the teller, but it's still just the same as it was in the 70s on the backend, this breakthrough is going to change that. Consider B2B transactions. SWIFT processes about 50 million TX messages daily. These cost about 10-25 USD a piece. With this technology, we're talking about a TX costing as little as ten-thousandths of a cent. That's going from 1.25 billion to 50K USD in TX fees daily. There are definitely implications of this for retail. With instant settlement, instead of getting payroll bi-weekly, an individual could get it in real-time, and I'd wager save businesses a lot of money that they may spend processing payroll.

Also, this makes nostro vostro obsolete. Freeing up thirty trillion plus USD that's not inflationary would have a very positive effect on the global economy.

- - - Updated - - -

I hope that no country will switch 100% to a digital ledger system that can't work analogue.
While it's quicker that's also a huge security risk.

Most money isn't printed in bills as it is. Most of it is in spreadsheets.

Should those spreadsheets be updated and be more efficient for global society? Yeah, probably.
Should they be fully digital and not translatable to be analogue? No, that's stupid. Hard Copy is best Copy. The question will be how often that is updated.

Why is it a security risk?

[Forogil]

SWIFT transactions aren't actually digital. They still use freaking tape servers because the core system is so old. If it's faster to hop on a plane and fly you a suitcase full of money, it is not digital. SWIFT TXs are not complete transactions.

And in EU the actual transaction seems to be handled by TARGET2 - and within 5 minutes in more than 99.9% of the cases.

Just boarding the plane takes more time.

(And then we have all of the digital transactions, especially within countries, that are basically instantaneous.)
As for central bank digital currencies being like crypto, it might be true in some way, but central bank digital currencies differ in every key aspect: centralized, no need for block-chain and non-anonymous.

[Feltima]

And in EU the actual transaction seems to be handled by TARGET2 - and within 5 minutes in more than 99.9% of the cases.

Just boarding the plane takes more time.

(And then we have all of the digital transactions, especially within countries, that are basically instantaneous.)
As for central bank digital currencies being like crypto, it might be true in some way, but central bank digital currencies differ in every key aspect: centralized, no need for block-chain and non-anonymous.

CBDCs are centralized, it's the over-network's settlement asset that needs to be decentralized. TARGET2 handles payments in five minutes, but it still takes three days to settle.

[Forogil]

CBDCs are centralized, it's the over-network's settlement asset that needs to be decentralized. TARGET2 handles payments in five minutes, but it still takes three days to settle.

And why should people care that it takes longer to settle the transaction?

And to clarify TARGET2 is Trans-European Automated Real-time Gross Settlement Express Transfer System (the US seems better at back constructing abbreviations) and is described as a real-time gross settlement system.

[Feltima]

And why should people care that it takes longer to settle the transaction?

And to clarify TARGET2 is Trans-European Automated Real-time Gross Settlement Express Transfer System (the US seems better at back constructing abbreviations) and is described as a real-time gross settlement system.

Why did we care about transistors over vacuum tubes?

TARGET2 just expedite payments, it does not settle transactions.

Instant settlement is the holy grail of global finance.



https://jameslavish.substack.com/p/t...-end-of-europe

[Forogil]

Why did we care about transistors over vacuum tubes?

TARGET2 just expedite payments, it does not settle transactions.

Except everything indicates that the real-time gross settlement systems actually settles transactions.

https://jameslavish.substack.com/p/t...-end-of-europe

That's a completely different issue - that's the imbalance between the Eurozone Central Banks; that doesn't mean that there is any delay for the actual settlement, just that Germany has lent the rest of Europe more than a trillion € - that's not a settlement that will happen in a few days as you suggest.

Instead, that's the downside of having a common currency (Euro) without a common state (the EU is not a state); nothing to do with digital currencies.

[Feltima]

Except everything indicates that the real-time gross settlement systems actually settles transactions.


That's a completely different issue - that's the imbalance between the Eurozone Central Banks; that doesn't mean that there is any delay for the actual settlement, just that Germany has lent the rest of Europe more than a trillion € - that's not a settlement that will happen in a few days as you suggest.

Instead, that's the downside of having a common currency (Euro) without a common state (the EU is not a state); nothing to do with digital currencies.

I only cited that article to point out that TARGET2 does not settle real-time.

Nothing indicates instant settlement, TARGET2 does not do that.

If it does, please cite a source that proves that it does instant settlement, thanks.

[Forogil]

I only cited that article to point out that TARGET2 does not settle real-time.

It didn't say that - it said central banks don't settle using it in the Eurozone, and if you read further, you would have understood that the point was that they never settle.

Nothing indicates instant settlement, TARGET2 does not do that.

If it does, please cite a source that proves that it does instant settlement, thanks.

The name, their annual report https://www.ecb.europa.eu/pub/target...ar2021.en.html - with the first main objective listed as:
"provide a safe and reliable mechanism for the settlement of euro payments on a real-time gross settlement (RTGS) basis;"

"As TARGET2 provides intraday finality, meaning that settlement is final for the receiving participant once the funds have been credited, it is possible to reuse these funds several times a day."

Or investopedia's description of RTGS https://www.investopedia.com/terms/r/rtgs.asp (yes, TARGET2 is listed, of course).

[Feltima]

It didn't say that - it said central banks don't settle using it in the Eurozone, and if you read further, you would have understood that the point was that they never settle.


The name, their annual report https://www.ecb.europa.eu/pub/target...ar2021.en.html - with the first main objective listed as:
"provide a safe and reliable mechanism for the settlement of euro payments on a real-time gross settlement (RTGS) basis;"

"As TARGET2 provides intraday finality, meaning that settlement is final for the receiving participant once the funds have been credited, it is possible to reuse these funds several times a day."

Or investopedia's description of RTGS https://www.investopedia.com/terms/r/rtgs.asp (yes, TARGET2 is listed, of course).

Thanks. This is really cool and blows almost all DLT networks out of the water, however, there are networks that surpass TARGET2 in cost, and speed, as well as not requiring pre-funding. It will be interesting to see if they can make further advancements on this technology.

[Forogil]

Thanks. This is really cool and blows almost all DLT networks out of the water, however, there are networks that surpass TARGET2 in cost, and speed, as well as not requiring pre-funding. It will be interesting to see if they can make further advancements on this technology.

The cost is usually close to the minimum 0.125€, and the average transactions is a measly 5 million €.

They are trying to reduce the cost.

[Logwyn]

I hope that no country will switch 100% to a digital ledger system that can't work analogue.
While it's quicker that's also a huge security risk.

Most money isn't printed in bills as it is. Most of it is in spreadsheets.

Should those spreadsheets be updated and be more efficient for global society? Yeah, probably.
Should they be fully digital and not translatable to be analogue? No, that's stupid. Hard Copy is best Copy. The question will be how often that is updated.

Last I looked 90% of all currency is in digital format. When this pops up I always think of this quote. I don't care who said it exactly that really doesn't matter...

"Give me control of a nation's money and I care not who makes its laws." Total online currency pretty much gives banks almost complete control over a nation or the world's money supply.

[Feltima]

Last I looked 90% of all currency is in digital format. When this pops up I always think of this quote. I don't care who said it exactly that really doesn't matter...

"Give me control of a nation's money and I care not who makes its laws." Total online currency pretty much gives banks almost complete control over a nation or the world's money supply.

Excellent point, it will definitely do that.