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IMF chief Georgieva sees CBDCs replacing cash over time – Industry roundup: 16 November

IMF says central bank digital currencies can replace cash

Central bank digital currencies (CBDCs) have the potential to replace cash, but adoption could take time, says Kristalina Georgieva, managing director of the International Monetary Fund (IMF).

“CBDCs can replace cash which is costly to distribute in island economies,” she told delegates at the Singapore FinTech Festival. “They can offer resilience in more advanced economies.

“CBDCs would offer a safe and low-cost alternative [to cash]. They would also offer a bridge to go between private monies and a yardstick to measure their value, just like cash today which we can withdraw from our banks.”

The IMF reports that more than 100 countries, around six in every 10, are exploring CBDCs. “The level of global interest in CBDCs is unprecedented. Several central banks have already launched pilots or even issued a CBDC,” it stated in a September report. 

According to a 2022 survey conducted by the Bank for International Settlements (BIS), of the 86 central banks surveyed, 93% said that they were exploring CBDCs, while 58% said they were likely to or may possibly issue a retail CBDC in either the short or medium term.

However as of June 2023, only 11 countries have adopted CBDCs, with an additional 53 in advanced planning stages and 46 researching the topic, according to data from the Atlantic Council.

Referring to a 2018 speech by her predecessor Christine Lagarde, when the former IMF chief encouraged policymakers to follow the “winds of change” and explore the use of CBDCs, Georgieva said: “Five years on, I’m here to provide an update on that voyage.

“First, countries did set sail. Many are investigating CBDCs and are developing regulation to guide digital money developments,” said Georgieva, referring to the speech. 

The fund is now issuing a CBDC handbook as a reference guide for policymakers around the world. Georgieva said many countries are investigating CBDCs and developing regulation to guide digital money developments.

“Second, we have not yet reached land. There is so much more space for innovation and so much uncertainty over use-cases,” Georgieva told an audience which included industry experts, investors and journalists.

“In some countries the case seems dim today, but even they should remain open to potentially deploy CBDCs tomorrow. Why?” asked Georgieva. “This is not the time to turn back.

“The public sector should keep preparing to deploy CBDCs and related payment platforms in the future. Fourth, these platforms should be designed from the start to facilitate cross-border payments, including with CBDCs,” the managing director said.


Japan’s negative rates may end in 2024

The Bank of Japan (BOJ) is likely to end its negative interest rate policy in April 2024 and keep raising short-term borrowing costs next year on heightening prospects of sustained wage growth, its former top economist Hideo Hayakawa said on Tuesday.

With inflation already exceeding the BOJ's 2% target for more than a year, the central bank tweaked yield curve control (YCC) in October to allow long-term rates to rise more - a move seen by markets as a step toward phasing out its huge stimulus.

Hayakawa’s remarks are the latest of a series in a series of hawkish comments by the BOJ in recent days, which insiders say is priming markets for an end to negative interest rates early next year

The distinct change in BOJ commentary is a part of Governor Kazuo Ueda's plan to dismantle the controversial monetary stimulus of his dovish predecessor Haruhiko Kuroda, which has been blamed for a host of issues including the yen’s sharp declines.

It comes as data this week revealed that Japan’s third quarter GDP contracted 2.1% from a year ago, after growing 4.8% in Q2, compared to expectations for a 0.6% decline in a Reuters poll. Quarter-on-quarter, GDP contracted 0.5% in the third quarter from the previous, compared to expectations for a 0.1% decline.

The shrinking of the economy in the July-September period was the fastest annualised quarterly pace in two years, as rising domestic inflation weighed on consumer demand, coupled with exports hit by weak demand for Japanese goods.

Both declines were Japan’s first in four quarters and are part of an unstable trend since the start of the Covid-19 pandemic in early 2020 that has seen periods of economic expansion alternating with contraction. The latest growth print underscores the policy challenges that Ueda and Japan’s Prime Minister Fumio Kishida face in the coming months.

Upcoming data points for policy deliberations could come from the bank’s “tankan” business sentiment survey due on 13 December, a gathering of BOJ regional branch managers in early January, and comments from business and union executives on next year's pay goals.


European companies to spend more on sustainability, says SAP

Nine out of 10 business leaders across Europe plan to maintain or increase their sustainability-linked investments by 2026, according to a survey by German business software maker SAP.

Factors driving action included the need to meet board environmental commitments, cited by 40% of respondents; a desire to boost the way the company is viewed by society (39%); a chance to develop new products (38%); and to boost revenues and profit (37%).

Edward Manderson, lecturer in environmental economics at the University of Manchester, said he had been “surprised” at how widespread the view was that “taking sustainability action improves profitability”.

SAP’s annual study surveyed 1,702 European business leaders to discover the challenges companies face to advance their sustainability plans as Europe seeks to become carbon neutral by 2050.

Business leaders cited several barriers to action on sustainability, such as difficulties measuring return on investment and the impact on the environment, as well as a lack of clarity on how to embed sustainability into business practices and the firm’s organisational strategy.

They also cited a lack of funding, although only 13% of companies said they included their chief financial officer (CFO) in sustainability decisions.

“I'm not convinced that a lot of organisations have a clear view on the investment required, or even the financial opportunity. That’s where the barriers are for the CFO,” said Sarwar Khan, global head of digital sustainability, business at the UK broadband and mobile provider BT.

As global regulations tighten over companies’ impact on the environment, the need to provide greater corporate disclosures was another obstacle, SAP showed, particularly around so-called Scope 3 emissions from corporate value chains.

“Most organisations now understand that Scope 3 is a really, really important part of them getting to net zero. Organisations today are figuring out how to get started on that journey,”  Khan said.


EBRD board of directors recommends €4 billion capital increase

The board of directors of the European Bank for Reconstruction and Development (EBRD) has recommended to the Bank’s governors that they approve a paid-in capital increase of €4 billion(US$4.34 billion) to enable it to provide significant and sustained investment for Ukraine.

Endorsement by the Board of Directors is the first step in the formal process of increasing the EBRD’s shareholding from its current level of €30 billion. Governors will make a final decision on the proposed capital increase by the year-end.

The decision “is in line with the governors’ recognition that support for Ukraine should be the Bank’s highest priority, now and in the future, following Russia’s full-scale invasion of the country, whilst also ensuring that the EBRD can continue to pursue its strategic priorities across all its economies of investment,” the Bank stated.

At the EBRD’s 2023 AGM in Samarkand last May, the governors agreed that additional shareholder support was needed to ensure the Bank could play its full role. They also acknowledged that paid-in capital was the most efficient, effective and widely shared instrument to provide such support.

If the governors approve the proposal, this will be the third capital increase in the EBRD’s history, following similar decisions in 1996 and 2010. The capital increase would take effect from the end of 2024, with first payments to come in early 2025.

Under the proposal submitted for governors’ consideration, the additional capital would enable the EBRD to continue providing a sustained level of investment during wartime of €1.5 billion a year, and to increase its annual investment in Ukraine to €3 billion in the future.

These investments would be twice the levels undertaken annually during wartime, and three times the pre-war average, and would preclude the need to systematically share risk with shareholders and donors through guarantees and grants.


Mastercard teams with NEC on in-store biometric payments

Mastercard is working with Japan’s NEC Corporation to promote the use of facial recognition technology for instore payments in Asia Pacific.

The firms have inked a memorandum of understanding that will see them combine NEC’s face recognition and liveness verification technology with Mastercard’s payment enablement and user experience.

The partnership is the latest stage in Mastercard's Biometric Checkout Program, which launched in May 2022 with a pilot in Brazil.

The programme aims to provide merchants, banks and technology firms with a technology framework to help set minimum standards for security, biometric performance, data protection and privacy requirements.

Ajay Bhalla, president, cyber and intelligence solutions, Mastercard, says: “As retailing environments continue to evolve and choices in ways to pay rapidly expand, biometric solutions offer a seamless, quick and secure checkout, without needing to unlock a phone or insert a PIN.

“This partnership with NEC will enable us to bring exciting new biometric payments to customers in countries across Asia Pacific and lead the world in safe and convenient checkout experiences.”


CBA shares AI source code for countering abusive transaction messages

Commonwealth Bank of Australia (CBA) is making available the artificial intelligence technology it uses to battle abusive transaction messaging to other institutions for no fee.

The AI model identifies language consistent with harassment, threats and other offensive material. CBA says it built the technology after finding people were using the description of transactions to make personal threats, noting its technology spots about 1,500 cases of high-risk messaging that involves potential violence.

CBA group customer advocate Angela MacMillan says: “We developed this technology because we noticed that some customers were using transaction descriptions as a way to harass or threaten others.

“By using this model we can scan unusual transactional activity and identify patterns and instances deemed to be high risk so that the bank can investigate these and take action.”

The model and source code are being made available through the bank’s partnership with on GitHub, the world’s largest platform for hosting source code.

“By sharing our source code and model with any bank in the world, it will help financial institutions have better visibility of technology-facilitated abuse. This can help to inform action the bank may choose to take to help protect customers,” says MacMillan.

CBA’s announcement follows the bank’s pilot with the New South Wales Police earlier this year to refer perpetrators of financial abuse to the police, with customer consent.

Nigeria offers reprieve for old bank notes

Nigeria’s central bank announced that old bank notes that were due to be removed from circulation next month would now remain legal tender, ending months of uncertainty after an attempt earlier this year to remove them caused serious cash shortages.

The Supreme Court in March ordered the Central Bank of Nigeria (CBN) to extend until 31 December the use of old 1,000, (US$1.18) 500 and 200 naira notes, whose initial withdrawal from circulation became an election issue after it caused widespread hardship and anger.

The bank had defended the removal of the notes, saying new ones would be harder to counterfeit and that the process would also help control liquidity in an economy where most money is held outside banks.

The CBN, which in September named Olayemi Cardoso as its new governor, said the old bank notes "will remain legal tender ad infinitum, even beyond the initial December 31, 2023 deadline".

During the election campaign, President Bola Tinubu had opposed the removal of the old bank notes.

Separately, new data shows that Nigerian inflation rose to a new 18-year high in October as higher input costs and a weaker naira sent food and goods prices higher, adding pressure on the central bank to raise interest rates. Consumer prices rose 27.3% from the prior year, compared with 26.7% in September, according to data published on the National Bureau of Statistics’ website.


APRA consults on liquidity and capital changes

The Australian Prudential Regulation Authority (APRA) has begun consulting on targeted changes to liquidity and capital requirements aimed at strengthening the banking sector’s resilience to future stress.

The proposed amendments, outlined in a letter to authorised deposit-taking institutions (ADIs), are said to reflect lessons learned from bank crisis events in the US and Europe earlier this year.

APRA is proposing a series of changes to the prudential framework chiefly targeting how banks manage their liquidity. The changes would primarily impact banks that are subject to the Minimum Liquidity Holdings (MLH) regime, rather than the more complex Liquidity Coverage Ratio (LCR) mainly used by larger banks1. 

APRA Member Therese McCarthy Hockey said: “This year’s banking turmoil overseas highlighted the threat that can arise when banks don’t regularly update the value of their liquid assets; it also reinforced the importance of minimising contagion risks.

“As a result, these targeted revisions aim to ensure that stress at one bank doesn’t have an outsized impact on the system, that liquid assets are prudently valued, and that banks are adequately prepared to access central bank liquidity where needed.

“We recognise the impact these proposals may have on some smaller banks, including financially, and will carefully consider options to mitigate this as part of the consultation process.”

In addition to accepting written submissions, APRA plans to hold a series of workshops during the consultation period to gather feedback and suggestions from the banking industry. APRA intends to finalise this consultation in H1 2024.


Alipay+ partners with Yapily for open banking payments in Europe

China’s online and mobile payment platform Alipay+ has partnered with open banking API Yapily to explore the application of open banking on various mobile payment platforms and enhance connectivity between consumers and merchants globally.

The partnership “will catalyse the deployment of a more convenient and secure payment option for millions of European consumers, in addition to the 1.4 billion consumer accounts already connected by Alipay+ across Asia,” a release stated.

Enabled by Yapily’s open banking infrastructure, consumers who bank with European financial institutions will be able to make cross-border payments to Alipay+ merchants across the world directly from their bank accounts.

“The introduction of such account-based payments is expected to streamline Alipay+’s payment process and bolster trust for merchants. Based on Yapily’s open banking payments infrastructure, the partners will jointly develop new solutions to provide the premise for merchants to increase transaction value by engaging customers throughout the buying journey and connecting them to promotions and other value-added services,” the release added.

“For merchants, Yapily’s open banking payment’s structure will offer the scalability and resilience to deliver service excellence to consumers, as well as the business agility required to further innovate in the payment and retail sectors globally.”


Andaria launches embedded finance offering

UK-based fintech Andaria has launched an “innovative embedded finance offering” that aims to empower non-financial businesses to integrate payment services into their platforms, both new and existing.

The company said that the initiative will empower partners to bolster their platforms through a wider range of financial products and services, allowing them to unlock new revenue streams.  The platform will also help bolster customer engagement through a cohesive, user-friendly financial ecosystem experience within partner platforms.

“The new solution features cutting-edge technology and AI enhancements, ensuring secure and compliant financial interactions. Additionally, the collaboration has undergone a successful beta testing phase, showcasing projected growth in revenue and increased customer engagement for partners,” the company added.

“Thanks to a recent partnership with Discover, clients can build loyalty by offering branded debit cards compatible with Google Pay and Apple Pay.”

Andaria CEO Nirav Patel said, “We are setting a new standard for the financial services industry with our new embedded finance solution by offering our clients the opportunity to achieve lower transaction costs, improve operational efficiency, and improve customer engagement.”

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