Twenty-one teams representing companies ranging from global corporations to fintechs have been shortlisted in a global hackathon focused on developing new solutions in three areas of central bank digital currency (CBDC) development.
The Bank for International Settlements (BIS) Innovation Hub and Indonesia’s central bank launched the third G20 TechSprint earlier this year after previous versions were co-organised by the BIS alongside the Banca d’Italia (for Italy’s G20 presidency in 2021 and focused on green finance) and, before that, the Saudi G20 presidency (in 2020, focused on RegTech and SupTech).
A hackathon is an event during which participants, typically coders and developers, design and present innovative solutions to a particular challenge.
For this TechSprint, BIS Innovation Hub and Bank Indonesia jointly decided to focus on technology challenges related to the development of retail and wholesale CBDCs. Teams were invited to develop solutions in three areas: issuing, distributing and transferring CBDCs; using CBDCs to help with financial inclusion; and using CBDCs to improve interoperability between countries’ payments systems.
BIS has today (12 July) revealed the 21 finalists, which were shortlisted from ‘almost 100’ entries. Global Government Fintech lists the finalists at the end of this article.
CBDC design choices ‘still unresolved’
“CBDCs have been attracting strong interest from central banks around the world,” said the Innovation Hub’s acting head Ross Leckow (Cecilia Skingsley of Sweden’s central bank is to become the Innovation Hub’s new permanent head on 14 September). “The proposals from the finalists offer unique and innovative technology solutions that could allow CBDCs to be widely adopted.”
“While the need to explore CBDC is inevitably high for central banks, design choices are still unresolved. In practice, we need to understand how policy goals, practical issues and technology intersect. The best way for central banks to prepare for this future of payments is to explore, experiment, conduct proofs-of-concept, pilot and develop CBDCs,” said Bank Indonesia’s deputy governor Juda Agung.
“With this in mind, the G20 TechSprint is a great opportunity for bright and ambitious young individuals as well as mature and well-established firms to show off their best potential and bring the most innovative and applicable solutions in CBDCs.”
The shortlisted teams have until the end of August to complete their prototypes, which will then be judged by an independent expert panel convened by Bank Indonesia. Winners for each of the three categories will be announced in October ahead of the G20 Summit.
The winners for each of the three categories (problem statements) will receive a prize of IDR 770,000,000 (about £43,000). All shortlisted projects will receive a stipend of IDR 145,000,000 (about £8,200).
Interoperability and flexibility crucial
The BIS Committee on Payments and Market Infrastructures (CPMI), BIS Innovation Hub, International Monetary Fund (IMF) and World Bank yesterday (11 July) jointly published ‘Options for access to and interoperability of CBDCs for cross-border payments’, which sets out how central banks face important decisions on interoperability and cross-border usage ‘if CBDCs are to fulfil their potential’.
Central banks need to be make critical choices on the access of non-residents and foreign financial institutions to CBDCs, as well as ensuring multinational interoperability, the 61-page report – which includes summaries of more than 10 completed CBDC research projects and ‘live’ digital currencies such as the Bahamas’ Sand Dollar and Nigeria’s eNaira – explains.
The report points out that CBDC projects that are yet to launch possess a ‘clean slate’ advantage but warns that this has an expiry date. International co-operation and co-ordination are needed in the ‘early stages’ of CBDC design and any system must be built with the ‘flexibility to adapt both to a changing world and the different CBDC designs likely to be chosen by central banks’, the report’s authors state.
There is no ‘one-size-fits -all’ model for access to and interoperability of CBDCs and, given that central banks have different motivations for pursue CBDC projects, they are likely to adopt different designs – and cross-border arrangements.
In this light, the report identifies and analyses different options for access to CBDCs and their interoperability that could improve cross-border payments, including how they can interconnect with non-CBDC payment arrangements. The report assesses these options based on five criteria: ‘do no harm’; boosting efficiency; increasing resilience; assuring coexistence and interoperability with non-CBDC systems; and enhancing financial inclusion.
Jurisdictions not planning to issue a CBDC should nonetheless also engage ‘as they will still be part of this new potential cross-border payments landscape’, the report adds.
Crypto’s ‘structural flaws’
The joint-paper on CBDCs’ interoperability is published less than a month after insights on how to design retail CBDCs that support financial inclusion featured in a chapter of BIS’s Annual Economic Report 2022 that set out a ‘blueprint’ for a future digital monetary system.
The chapter, titled ‘The future monetary system’, argues that ‘structural flaws’ make the crypto universe – which BIS describes as currently being ‘in turmoil’ – unsuitable as the basis for a monetary system and that a system ‘grounded in central bank money offers a sounder basis for innovation, ensuring that services are stable and interoperable, domestically and across borders’.
The crypto sector does, the 41-page chapter states, ‘provide a glimpse of promising technological possibilities’ but it ‘cannot fulfil all the high-level goals of a digital monetary system’.
Recent advances in wholesale and retail CBDCs and retail fast payment systems could, the chapter states, ‘form the basis of an adaptable future monetary system that fosters private sector innovation, while enabling greater financial inclusion and user control over data’.
The chapter’s section on CBDCs and financial inclusion draws on ‘Central bank digital currencies: a new tool in the financial inclusion toolkit?’, a paper published in April that was jointly authored by BIS and World Bank staff after interviewing nine central banks.
G20 TechSprint (2022) shortlisted teams
Building effective and robust means to issue, distribute and transfer CBDCs (problem statement one)
- Dragonfly Fintech Pte.
- Mastercard Asia Pacific Pte
- Roxe CBDC
- S.e.A. (Stellar, eCurrency and ANZ)
Solutions to enable financial inclusion (problem statement two)
- Crunchfish AB
- DANA Indonesia – DANA XCOOL Team
- Umoja Labs
- Extolabs LLC
- Giesecke+Devrient (G+D) Filia
- Rumsan – Blockchain Foundation Nepal
Improving connectivity and interoperability (problem statement three)
- Andhiko Soetono – CBDC NewIdea
- Business Reporting Advisory Group
- FreeFlow Finance
- Satellite Moving Devices Group B.V. – paywith.glass
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‘Green finance “TechSprint” winners named’ – our news story (25 Oct 2021) on teams from Belgium, Italy and the UK winning the ‘G20 TechSprint 2021’