Central Bank Digital Currency (CBDC) Tracker, ISO 20022 Crypto, And Investment Opportunities

Mar 02, 2023

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By Leroy A Brown

As cryptocurrencies, digital wallets, stablecoins, mobile payment apps, e-transfer payments, etc., gained momentum over the years, there is now a drive by central banks to create a central bank digital currency (CBDC).

So, what is a central bank digital currency (CBDC)?

The central bank digital currency (CBDC) is money in digital form that is issued by a central bank.

If issued to individuals, it is money that can be used to pay for goods and services using a mobile phone, special card, or other devices that allows online transactions.

The digital currency issued by the central bank will typically retain its face value as the currency now in use.

For example, CAD$1 digital currency, will be worth the same as CAD$1 banknote.

Whereas current currencies used can be exchanged and used to pay for products and services in cash, paper forms like cheques and bank drafts, and electronically using debit and credit cards, online like e-transfers and money transfers, central bank digital currencies (CBDCs) can only be done via a digital network.

According to the Bank of Canada’s website[1], it has no plans to issue a digital currency at this time. However, it is building the capacity to do so if required.

The Bank of Canada has stated on its website, that banknotes will still be available even if a central bank digital currency (CBDC) is introduced.

Other central banks have their approaches, plans, and ways to create and implement a central bank digital currency (CBDC).

For example, according to the Board of Governors of the Federal Reserve System’s website[2], the federal reserve has not made any decision to pursue or implement but is exploring a central bank digital currency (CBDC).

Current Money System

According to the research paper, ‘Money and Payments: The U.S. Dollar in the Area of Digital Transformation’[3] by The Board of Governors of the Federal Reserve System, dated January 2022, the Federal Reserve used telegraph wire transfers to clear cheques in its early days.

Then in the 1970s, the Federal Reserve began using electronic means of clearing cheques called the automated clearinghouse (ACH) system.

In 2019, the Federal Reserve initiated the FedNow Service, which is a real-time, 24/7, interbank payment system.

The research paper, ‘Money and Payments: The U.S. Dollar in the Area of Digital Transformation’ by The Board of Governors of the Federal Reserve System, dated January 2022, has highlighted there are three (3) types of money in the United States of America (U.S.A.).

These three (3) types of money are similar to other countries.

The three (3) forms of money are central bank money, commercial bank money, and nonbank institutions money.

Central Bank Money

The central bank money is the physical money issued by the central bank, such as the United States (U.S.) dollar issued by the Federal Reserve and the Canadian dollar issued by the Bank of Canada.

Central bank money also includes the digital balances that commercial banks have at the central bank.

Because this is where money is issued, central bank money has no credit or liquidity risk.

Commercial Bank Money

Commercial bank money is money that is kept in digital form in accounts at commercial banks such as the Bank of America in the United States of America (U.S.A.) and the Toronto-Dominion Bank (TD Bank) in Canada.

Commercial bank money is denominated in the same currency as the central bank.

Commercial bank money is considered to have little credit or liquidity risk because of the following:

Federal deposit insurance was implemented to help to ensure deposits up to a specific limit are secure.

Examples of federal companies that provide deposit insurance are the Federal Deposit Insurance Corporation (FDIC) in the United States of America (U.S.A.) and the Canada Deposit Insurance Corporation (CDIC) in Canada.

Commercial banks are supervised and regulated by various entities.

United States of America (U.S.A.)

THE FEDERAL RESERVE SYSTEM (THE FED)

In the United States of America (U.S.A.), the Federal Reserve System (the Fed) is the central bank system of the United States of America (U.S.A.) and was created in 1913 by the 1913 Federal Reserve Act.

The Fed supervises and regulates many financial institutions, such as:

The Fed supervises and regulates large financial institutions/banks like Wells Fargo and U.S. Bankcorp.

Financial holding companies that have banks and other financial entities are supervised and regulated by the Fed.

For example, JPMorgan Chase & Co. (i.e., the holding company) owns JPMorgan (i.e., the global financial services provider to corporations, governments, and institutions) and Chase Bank (i.e., the consumer and commercial banking division).

Another example of entities supervised by the Fed is Citigroup (i.e., the global investment bank and financial services company) which owns Citicorp (i.e., the holding company) that has Citibank (i.e., the commercial bank).

The Fed supervises and regulates community banks such as Carver Federal Savings Bank in New York and the Northrim Bank in Alaska.

Foreign banking organizations (FBOs), such as international banks like HSBC from London, England, Toronto - Dominion from Toronto, Canada, and Mega International Commercial Bank from Taipei, Taiwan, are supervised and regulated by the Fed.

The Fed supervises and regulates financial market utility companies such as the Clearing House Payments Company L.L.C., the Chicago Mercantile Exchange, Inc., and the Options Clearing Corporation.

The Fed supervises and regulates national-chartered banks like Goldman Sachs, PNC Bank, and Capital One.

The Fed supervises and regulates state-chartered banks that are part of the Federal Reserve System, such as the Federal Reserve Bank of Boston in Boston, Massachusetts, the Federal Reserve Bank of New York in New York City, New York, and the Federal Reserve Bank of San Francisco, in San Francisco, California.

Other entities that act in a regulatory and supervisory manner are:

supervises state-chartered banks and state-chartered savings associations that are not part of the Federal Reserve System.
The Financial Stability Oversight Council (FSOC), under section 113 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, is authorized to identify if an entity may be a threat to the financial stability of the United States (U.S.), such as that company having any liquidity or credit risk.

If such a company is identified as a threat, it will be supervised more (of Title VIII) by the Fed.

The Office of the Comptroller of the Currency (OCC) supervises nationally chartered banks that are members of the Federal Reserve System.

STATE BANKING AGENCIES/REGULATORS

State banking agencies/regulators charter, supervise, and regulate financial institutions in their respective states.

Examples of state banking agencies/regulators that supervise, regulate, and charter financial institutions are the Washington State Department of Financial Institutions in the State of Washington (WA) and the New York State Department of Financial Services in New York State (NY).

Canada

In Canada, there are the central bank and commercial banks.

NATIONAL/FEDERAL

There are several institutions that offer oversight, supervision, and regulation in the Canadian banking and financial sector nationally/federally.

Department of Finance

Canada’s Department of Finance is responsible for Canada’s overall economy. It operates through various institutions that are part of its portfolio, such as the Canadian International Trade Tribunal (CITT), the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), and the Royal Canadian Mint.

The Department of Finance also carries out its responsibilities through its provincial and territorial partners, such as the Ministry of Treasury Board and Finance in Alberta, The Department of Finance in the Northwest Territories, and the Ministry of Finance in Ontario.

The Bank of Canada

The Bank of Canada is the central bank of Canada. Among its many functions like executing monetary policy, ensuring a viable financial system, issuing Canadian bank notes, and having fiscal management of the Government of Canada’s public debt and foreign exchange activities, it also supervises payment service providers (PSPs) under the Retail Payment Activities Act (RPAA).

Examples of payment service providers (PSP) that operate in Canada are Clearly Payments, FreshBooks, and Moneris.

Office of the Superintendent of Financial Institutions (OSFI)

The Canadian government agency, the Office of the Superintendent of Financial Institutions (OSFI), supervises and governs federally regulated financial institutions such as foreign and domestic banks, trust companies, loan providers, life insurance companies, fraternal benefit societies, and property and casualty insurance entities in Canada.

Examples of domestic banks operating in Canada are the Canadian Imperial Bank of Commerce (CIBC), the Peoples Bank of Canada, and the Wealth One Bank of Canada.

Examples of foreign banks conducting business in Canada are the Bank of China (Canada), Deutsche Bank A.G., and the JPMorgan Chase Bank, N.A. -Toronto Branch.

Canada Deposit Insurance Corporation (CDIC)

The Canada Deposit Insurance Corporation (CDIC) is a federal crown corporation that helps to protect savings and solve problems originating from any of its members.

Financial Consumer Agency of Canada (FCAC)

The Financial Consumer Agency of Canada (FCAC) is a federal government regulator that helps to protect consumers by supervising national banks, credit unions, insurance companies, retail associations, etc.

FCAC also keeps watch over payment card network operators such as UnionPay, American Express, MasterCard, Discover, and Visa.

PROVINCIAL AND TERRITORIAL

Canadian Securities Administrators (CSA)

The Canadian Securities Administrators (CSA) is comprised of securities regulators in Canada’s provinces and territories.

The CSA is where the provincial and territorial regulators work on a shared vision through regulation of the Canadian capital markets.

Financial Institutions

Provincial and territorial bodies and agencies supervise and regulate financial institutions such as credit unions, securities market operators/dealers, and caisses populaires (i.e., francophone credit unions).

Examples of provincial and territorial bodies and agencies that supervise and regulate financial institutions are:

The Finance and Treasury Board and the Nova Scotia Securities Commission in Nova Scotia;
The Government of Nunavut and the Nunavut Office of the Superintendent of Securities in Nunavut;
And the Financial Services Regulatory Authority of Ontario (FSRA) and the Ontario Securities Commission (OSC).

Commercial banks have access to liquidity from the central bank.

Nonbank Money

Nonbank money is the digital form of money that is kept as balances at nonbank financial institutions such as hedge funds, venture capitalist firms, stock brokerages, insurance companies, money market funds, microloan lenders, credit unions, pawn shops, P2P lenders, currency exchange companies, investment banks, credit card companies, private equity funds, etc.

Nonbank money is denominated in the same currency as the central bank.

Some of the entities that supervise and regulate nonbank financial institutions in the U.S. are:

U.S. SECURITIES AND EXCHANGE COMMISSION (SEC)

The U.S. Securities and Exchange Commission (SEC) is a United States (U.S.) federal government agency that was created after the 1929 Wall Street Crash to help protect investors, assist in the creation of capital, and ensure fair play.

NATIONAL CREDIT UNION ADMINISTRATION (NCUA)

The National Credit Union Administration (NCUA) charters and regulates credit unions.

DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT

Savings and Loan Associations (S & L or thrifts)

Instead of the Office of Thrift Supervision (OTS) of 1989, as of July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act governs savings and loan associations (S & L or thrifts) through the Office of the Comptroller of the Currency (OCC) for federal savings associations, the Federal Reserve System (The Fed) for savings and loan holding entities, and the Federal Deposit Insurance Corporation (FDIC) for state–chartered savings associations.

Swaps Market

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 has ushered in reforms to regulating swaps, resulting in the Commodity Futures Trading Commission (CFTC) writing rules for the swaps market.

Central bank digital currencies (CBDCs) and Cryptocurrencies

The central bank digital currency (CBDC) is money in digital form that is issued by a central bank.

Cryptocurrencies may be different and similar to central bank digital currencies (CBDCs).

Cryptocurrencies are digital assets that are issued by private entities or individuals, while central bank digital currencies (CBDCs) are issued by central banks.

For example, in 2013, Vitalik Buterin published his introductory paper for Ethereum, and Ether went on sale in 2014.

Ethereum is the blockchain, and Ether is the cryptocurrency used in it.

While the Sand Dollar, the first central bank digital currency (CBDC) officially in circulation, was issued by the Central Bank of the Bahamas.

The Sand Dollar is equivalent to the Bahamian dollar (B$).

Other things to note about CBDCs and cryptocurrencies are:

CBDCs have the same value as the currencies of the respective countries, while cryptocurrencies may fluctuate in value.
For CBDCs, decisions are made by one set of bodies – central banks, while for cryptocurrencies, decisions are made as a consensus by the network of users.
CBDCs are centralized, and cryptocurrencies are decentralized.
There are some cryptocurrencies called stablecoins that are pegged to the U.S. dollar, such as Tether (USDT), USD Coin (USDC), and Binance USD (BUSD); thus, they may function as CBDCs.
Cryptocurrencies are more private, while CBDCs are linked to your bank account, and so are not as private.
CBDCs are kept in bank accounts, while cryptocurrencies are held in digital wallets.

Central bank digital currency (CBDC) Benefits/Pros and Limitations/Cons

CBDC Benefits/Pros

Because CBDCs are centralized, they may scale easier.
Commercial banks and other financial institutions already have systems to verify identities to access accounts.
CBDCs can be programmable to do various tasks, like ensuring payments at a specific time.
CBDCs use permission blockchain, which means it is not accessible to the public, and access must be granted.
There are already permission blockchains, such as R3 Corda and Hyperledger Fabric.
Because CBDCs are issued by central banks, it is assumed that they can be trusted as they should have greater oversight.
CBDCs create less privacy, so it is easier to track.
Because CBDCs are backed by the central bank, it is assumed there will be little to no liquidity and debt risks.
CBDCs may offer cheaper, more secure, and more efficient financial transactions.
Consumers don’t have to worry about a commercial bank collapse as their funds are believed to be secure with the central bank.
CBDCs may help to reduce or eliminate fees charged for executing financial transactions.
Because transactions can be tracked, more data may be collected.
CBDCs may help to reduce fraud and illegal activities as the transactions are easier tracked as a result of less privacy.

CBDC Limitations/Cons

There are some cryptocurrencies called stablecoins that are pegged to the U.S. dollar, such as Tether (USDT), USD Coin (USDC), and Binance USD (BUSD).

As such, there may be no need for central bank digital currencies (CBDCs), as stablecoins may be used as is or pegged to the respective countries' money.

Because CBDCs can be programmable, they may be used for various things like imposing limits, blocking access, specifying what you can or can’t purchase, dictating to you when you can and can’t make purchases, etc.
Because CBDCs are digital forms of fiat currencies, they may not solve financial and economic problems such as recessions, a significant rise in inflation, unemployment, reduction in the value of currencies, debt crises, liquidity problems, socioeconomic inequality, etc.
Cryptocurrencies are transacted by several networks, thus, reducing the possibility of having absolute control and corruption.
CBDCs are transacted by one main source – central banks; thus, there is the possibility for absolute control and corruption.
CBDCs offer a lack of privacy as they are connected to your bank account.
Privacy may be eroded as CBDCs allow for more personal information to be collected as users can be easier tracked.
Protecting consumer privacy was one of the concerns identified in the research paper, ‘Money and Payments: The U.S. Dollar in the Area of Digital Transformation’ by The Board of Governors of the Federal Reserve System, dated January 2022.
CBDCs may be less secure as they are kept in accounts on a digital network, while cryptocurrencies may be stored in digital wallets online (i.e., soft wallet) or in wallets offline (i.e., hard wallet).
Because the central banks do not have direct bank accounts for individuals, intermediaries like commercial banks will be used, which means these financial institutions have to offer ways of facilitating transactions and storing CBDCs.
Central banks will have to design a way of settling transactions for CBDCs.
CBDCs may negatively impact the overall financial system and structure.
As a result of wire transfers, e-transfers, money transfers, credit cards, debit cards, and other ways of transferring money being in existence already, there may be little or no need for CBDCs for transferring money.
Because there are more ways to transfer money today and more innovations happening, they have made conducting financial transactions cheaper and more accessible, thus making CBDCs appear irrelevant.
For CBDCs, decisions are made by one source – central banks, and as such, those conclusions or resolutions may not be in the best interest of all concerned.
While transactions are predominantly done in one currency in a country, a CBDC may have to be transacted in two ways.
One way is the retail CBDC, which is for the public and is used for purchases and to receive payments.
The second way is the wholesale CBDC, which is for settlements, interbank, and clearing house transactions.

Implementing and using CBDCs may increase cybersecurity risks as they are very technologically dependent.
CBDCs may cause conflicts between commercial and central banks as commercial banks may become irrelevant.
CBDCs may compete with businesses that conduct mobile payments.

Central bank digital currency (CBDC) Countries

Examples of some countries that have officially launched or are testing central bank digital currencies (CBDCs) are:

The Bahamas

The Bahamas was the first country to launch a national central bank digital currency (CBDC) called the Sand Dollar on October 20, 2020.

Nigeria

Nigeria is the second country to officially launch a national central bank digital currency (CBDC) called the eNaira on October 25, 2021.

Jamaica

Jamaica launched its central bank digital currency (CBDC) on July 11, 2022, called Jam-Dex.

China

China is one of the largest countries in the world by population and economy, and it is testing the digital yuan, also known as the digital renminbi, digital RMB, e-CNY, e-RMB, or e-yuan.

International Organization for Standardization (ISO) 20022

The International Organization for Standardization (ISO) 20022 is the standard for all financial pursuits involving electronic message exchange.

ISO 20022 becomes effective on March 20, 2023, for cross-border transactions.

ISO 20022 will exist along with ISO 20022 MX and legacy MT until November 2025.

ISO 20022 Compliant Cryptocurrencies

ISO 20022-compliant cryptocurrencies will be the cryptocurrencies that will be allowed for cross-border and international financial transactions.

The ISO-compliant cryptocurrencies will be part of the shift from using the Society for Worldwide Interbank Financial Telecommunication (SWIFT) messages exchanges network (i.e., ISO 15022) to the new ISO 20022 financial messaging standard.

Some of the cryptocurrencies that are compliant with ISO 20022 are:

Quant (QNT)
Algorand (ALGO)
Ripple (XRP)
Stellar (XLM)
Hedera (HBAR)
XDC Network (XDC)
IOTA (MIOTA)

Central bank digital currency (CBDC) Investment Opportunities

There are many investment opportunities popping up as central bank digital currencies (CBDCs) are researched, tested, and implemented.

Some of these investment opportunities are as follows:

ISO COMPLIANT CRYPTOCURRENCIES INVESTMENT OPPORTUNITIES

Already, investors are bullish on ISO 20022-compliant cryptocurrencies as they anticipate significant price increases and, as such, a huge payoff.

Therefore, you may be able to cash in on this bull run by purchasing and selling at a higher price, or keeping as a store of value, ISO 20022-compliant cryptocurrencies.

CENTRAL BANK DIGITAL CURRENCY (CBDC) AND COMPANIES INVESTMENT OPPORTUNITIES

As more countries adopt their central bank digital currencies (CBDCs) and they become more widely used in financial transactions, you may invest in them through various means such as:

Stock futures

If available, you may purchase CBDC futures on futures exchanges.

However, only fiat currencies are available for such an investment currently.

For example, because the Chinese digital yuan is used the most globally thus far, and it is equivalent to the Chinese yuan, you may buy the yuan futures on a futures exchange.

Futures are a form of derivative where the buyer and seller have a contractual agreement to buy and sell a specific equity asset like currency, e.g., the yuan, at a set date and price in the future.

Examples of futures exchanges that do various futures transactions are:

IN THE U.S.

The New York Mercantile Exchange (NYMEX)
The Cboe Options Exchange (Cboe)
The Chicago Board of Trade (CBoT)
The Chicago Mercantile Exchange (CME)

IN CHINA

Shanghai Futures Exchange
Dalian Commodity Exchange
Shanghai International Energy Exchange
Zhengzhou Commodity Exchange
China Financial Futures Exchange

Exchange-traded funds (ETFs)

Another way to invest in currencies is to purchase exchange-traded funds (ETFs) that track the specific currency you seek.

For example, you may invest in an ETF that tracks the Chinese yuan.

Equities

Other investment opportunities are investing in companies that are part of central bank digital currencies (CBDCs) research and development.

DIGITAL PROJECT

For example, Accenture plc (ACN) is a company that partnered with the U.S. nonprofit Digital Project to carry out the first central bank digital currencies (CBDCs) pilot project in the U.S. as of May 3, 2021.

Accenture plc (ACN) trades on the New York Stock Exchange (NYSE).

On May 3, 2021, Accenture plc's (ACN) stock price was US$292.17; on February 27, 2023, it was US$266.25 per share.

PROOF OF CONCEPT (POC)

You may also consider investing in the companies that participated in the proof of concept (PoC) project for central bank digital currencies (CBDCs) as of November 15, 2022, in the U.S.

The entities that participated in the proof of concept (PoC) project for central bank digital currencies (CBDCs) in the U.S. were Mastercard (MA), PNC Financial Services (PNC), HSBC Holdings (HSBC), Citigroup (C), and Wells Fargo (WFC).

On November 15, 2022, Mastercard Inc.'s (MA) stock price was US$343.51; on February 27, 2023, it was US$355.48 per share on the New York Stock Exchange (NYSE).

On November 15, 2022, PNC Financial Group Inc.'s (PNC) stock price was US$164.14, and on February 27, 2023, it was US$157.70 per share on the New York Stock Exchange (NYSE).

On November 15, 2022, HSBC Holding plc's (HSBC) stock price was US$28.25; on February 27, 2023, it was US$37.98 per share on the New York Stock Exchange (NYSE).

On November 15, 2022, Citigroup Inc.'s (C) stock price was US$49.03; on February 27, 2023, it was US$50.47 per share on the New York Stock Exchange (NYSE).

On November 15, 2022, Wells Fargo and Company's (WFC) stock price was US$46.71; on February 27, 2023, it was US$46.78 per share on the New York Stock Exchange (NYSE).

PLATFORM

Another central bank digital currencies (CBDCs) investment opportunity is to invest in entities where platforms are being built.

For example, by May 22, 2020, the Nasdaq partnered with distributed ledger technology (DLT) company R3 to offer more services to its clients using the F3’s Corda blockchain technology.

Nasdaq Inc. is a financial services and infrastructure provider that owns three (3) stock exchanges, including the Nasdaq Stock Exchange, the second-largest stock exchange in the world.

On May 22, 2020, the Nasdaq Inc.'s (NDAQ) stock price was US$38.45; on February 27, 2023, it was US$56.35 per share on the Nasdaq Stock Exchange.

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[1] https://www.bankofcanada.ca/research/digital-currencies-and-fintech/projects/central-bank-digital-currency/

[2] https://www.federalreserve.gov/central-bank-digital-currency.htm#:~:text=While%20the%20Federal%20Reserve%20has,through%20technological%20research%20and%20experimentation.

[3]https://www.federalreserve.gov/publications/files/money-and-payments-20220120.pdf