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11. Privacy in cross-border digital currency: A transatlantic approach

Author:
Giulia Fanti and Nadia Pocher
Publication Date:
09-2022
Content Type:
Working Paper
Institution:
Atlantic Council
Abstract:
As a growing number of countries explore Central Bank Digital Currencies (CBDCs) for the domestic context, multi-country cross-border CBDCs pilots are also proliferating. Cross-border CBDCs could make cross-border payments faster, cheaper, and simpler. However, for any cross-border CBDC to unlock these benefits and be widely adopted, it must address key concerns, chief among them risks around privacy and transparency of data. This article illustrates how various technical design choices can affect the privacy and transparency of cross-border CBDCs. For instance, architectural choices about the structure of a cross-border CBDC and representational choices about how transactions are encoded in the underlying software can have far-reaching implications for privacy and transparency—both in a domestic context and for cross-border transactions. Many of the cross-border CBDC pilot studies to date have (understandably) adopted the technical designs provided by enterprise distributed ledger platforms. However, some of these designs make tradeoffs regarding privacy, efficiency, and/or security. Whether these tradeoffs are acceptable is a matter of policy, and requires coordination between different regulators and central banks. In view of these implications—and some of the corresponding tensions that arise—we argue that the US and the EU should work together alongside other partners to create the technological and regulatory environment to enable privacy-preserving cross-border CBDCs. The US and the EU should seize the emergence of CBDCs as an opportunity to finally establish a transatlantic privacy framework, and clarify its interplay with the prevention of money laundering and financing of terrorism (AML/CFT/CPF). More broadly, both should harness the clout of their combined financial systems to develop digital asset regulation and standards with a global reach and democratic values. These regulatory developments would not only streamline regulatory guidelines, but they could also directly impact and ease the technical development of a cross-border CBDC.
Topic:
Privacy, Currency, Transatlantic Relations, and Digital Currency
Political Geography:
Europe, Canada, North America, and United States of America

12. Retail Central Bank Digital Currency: Has Its Time Come?

Author:
Pierre L. Siklos
Publication Date:
02-2022
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation (CIGI)
Abstract:
As central banks around the world prepare to launch central bank digital currencies (CBDCs), this paper looks at issues surrounding a retail version of CBDCs that would complement notes and coins for consumers. To build the public’s trust in this type of digital currency, concerns such as loss of privacy and security of financial transactions must first be addressed. In addition to these concerns, CBDCs carry the potential risks of overburdening central banks and disrupting cross-border transactions. These and other challenges can be overcome by ensuring the right regulatory and supervisory measures are in place before CBDCs take hold.
Topic:
Regulation, Finance, Central Bank, Banking, and Digital Currency
Political Geography:
Global Focus

13. South Korea's Critical Moment in Digital Currency Policymaking: Between Regulating Cryptocurrencies and Launching a Central Bank Digital Currency (CBDC)

Author:
June Park
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
Korea Economic Institute of America (KEI)
Abstract:
Why is South Korea pilot-testing its Central Bank Digital Currency (CBDC), and what made it shift from non-issuance to consideration? This paper investigates the Bank of Korea (BOK)’s CBDC-related developments amid the geopolitical contest between the U.S. and China. It examines the Moon Jae-in administration’s defiance of decentralized finance (DeFi) and the BOK’s sudden shift from non-issuance to potential issuance, which led to expedited research, development, and pilot-testing of CBDCs. As in the case of the digital yuan, the BOK envisions a hybrid architecture for the digital won, wherein central banks and associated partner institutions are CBDC distributors, though they are distinguished by placing the digital won on distributed ledger technology rather than by centrally controlling it. However, South Korea’s previously rash decision to forego DeFi under an undemocratic process has deprived the country of the time and opportunity to develop new innovations as a leading country in the digital frontier. By sticking only to digitalizing centralized finance, the country now aims to be in “standby” mode for its CBDC launch if and when required, so as not to fall behind in digital financial architecture. This paper scrutinizes the South Korean government’s moves on crypto and CBDCs and argues that 1) the Moon administration has shown incapability in addressing DeFi amid the crypto boom and bust, and 2) the BOK’s shift from non-issuance to potential issuance of the digital won is driven by its interest to uphold central bank independence amid swaying geopolitics between the U.S. and China and an unpredictable upcoming presidential election in South Korea.
Topic:
Economics, Elections, Finance, Cryptocurrencies, and Digital Currency
Political Geography:
China, Asia, South Korea, North America, and United States of America

14. Prospects for the Launch of the Digital Yuan

Author:
Oskar Szydłowski
Publication Date:
02-2022
Content Type:
Special Report
Institution:
The Polish Institute of International Affairs
Abstract:
Among the digital currency projects developed by major economies, the Chinese digital yuan (e-CNY) is the most advanced. After pilot projects in selected Chinese regions, the biggest test was to be at the Winter Olympics in Beijing. The spread of the digital yuan will enable the Chinese Communist Party (CCP) to expand its digital authoritarianism through increased surveillance of citizens’ finances. It may also increase the Chinese currency’s share of international transactions in the region. The success of the e-CNY should accelerate the ECB’s work on a privacy-preserving digital euro.
Topic:
Authoritarianism, Surveillance, Digital Currency, and Yuan
Political Geography:
China, Europe, and Asia

15. The Price of Speculation: Cryptocurrencies and Climate Change

Author:
Izaura Solipa and Gerald Epstein
Publication Date:
08-2022
Content Type:
Working Paper
Institution:
Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:
Cryptocurrencies are a form of digital currency whose popularity has rapidly increased over the past decade. What distinguishes them from other electronic currencies is their underlying technology known as the blockchain, a decentralized public ledger in which transactions among the network peers are accurately and securely recorded. The validation and mining process, where new coins are issued, is highly computationally intensive and thus requires vast amounts of energy. The literature estimates energy consumption levels of the cryptocurrency mining to be as high as those of countries such as Angola, Iceland or Cuba, and a corresponding emission of at least 3-15 million tons of CO2. We discuss these estimated impacts of Bitcoin and other cryptocurrencies on both energy levels and the environment, and then outline alternative applications that could promote climate change mitigation. We argue that despite the latter applications and the possible benefits from the technology, particularly in the energy sector, the financial uses of blockchain are creating significant environmental costs without any clear social or economic benefit stemming from this largely speculative activity.
Topic:
Climate Change, Science and Technology, Economy, Cryptocurrencies, Blockchain, Digital Currency, and Speculation
Political Geography:
Global Focus