Post on 04-Jul-2020
Eastern Caribbean Central Bank
Transforming The ECCU Together6/13/2019 1
DXCDDigital EC Currency
Facilitated by Sybil L. Welsh, Adviser, ECCB
Bridging Financial Innovation and Regulation:
The Eastern Caribbean Central Bank Digital EC currency (DXCD) Pilot Project
Eastern Caribbean Central Bank
Transforming The ECCU Together6/13/2019 2
Eastern Caribbean Central Bank
The ECCB’s FinTech pilot project (i.e. issuance of a digital EC currency
herein referred to as DXCD) is consistent with the ECCB’s monetary and
financial stability and economic development mandates as enshrined in
Article 4 of The ECCB Agreement Act 1983.
I. To regulate the availability of money and credit;
II. To promote and maintain monetary stability;
III. To promote credit and exchange conditions and a sound financial structure
conducive to the balanced growth and development of the economies of the
territories of the participating governments; and
IV. To actively promote through means consistent with its other objectives the
economic development of the territories of the Participating Governments.
Transforming The ECCU Together6/13/2019 3
Strategic Relevance
Eastern Caribbean Central Bank
The ECCB’s DXCD pilot project is also part of the actualisation of the
ECCB Strategic Plan 2017 - 2021:
Goal 2: Ensure a strong, diversified and resilient financial sector.
Goal 4: Actively promote the economic development of our
member territories.
The DXCD pilot is a research initiative with the intended purpose of
identifying solutions to some of ECCU’s critical challenges.
Transforming The ECCU Together6/13/2019 4
Strategic Relevance … continued
Eastern Caribbean Central Bank
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STRENGTHS (+) WEAKNESSES (–)
• 8 member state monetary union and
central bank, 1983 – present.
• Stable and strong EC currency, 1965 –
present.
• Paper-based transactions (cash and cheques), which account for about
90% of the value of all payments (44% of the volume of transactions)
in the ECCU are not only inefficient but also costly.
• Lack of competitiveness evidenced in the Ease of Doing Business
rankings and low growth.
• Notes and coins in circulation is high. >1 billion as at May 2019.
OPPORTUNITIES (+) THREATS (–)
• Leverage technology to improve
financial intermediation and inclusion,
reduce cost and spur economic
development and competitiveness.
• Reduce paper-based transactions by 50
per cent over a five year period.
• Rising cost of financial intermediation (minimum balances on
accounts, bank charges and transaction fees). The current unit cost of
financial intermediation in the ECCU appears to be one constraint to
advancing growth in the ECCU consistent with the theories of
economic historians who advance the finance-growth nexus.
• The loss of banking services by some customers as some banks have
begun either increasing their fees or have closed ‘small accounts’
viewing them as too small to justify the costs to be maintained.
• Increase in physical attacks on businesses and business persons.
Eastern Caribbean Central Bank
Transforming The ECCU Together6/13/2019 6
ECCB Notes and Coins in Circulation
Eastern Caribbean Central Bank
“When we survey our current payments landscape, we cannot helpbut conclude that payments are still too slow and tooexpensive…Although a full-scale analysis of the social cost ofphysical cash in the ECCU has not been carried out, it is indisputablethat the costs of cash services, inclusive of transporting, storing,securing and insuring, are extremely high.”
Timothy N. J. Antoine, ECCB Governor
6/13/2019 Transforming The ECCU Together 7
Eastern Caribbean Central Bank
Transforming The ECCU Together6/13/2019 8
ECCU Economic Imperative
Resilience
& Competitiveness
Financial Inclusion
Economic Growth
DXCD Objectives
Eastern Caribbean Central Bank
The ECCB currently has two forms of EC currency:
1. ECCB money in the form of cash
2. ECCB money in the form of reserves or settlement account balances held bycommercial banks and certain other financial institutions at the ECCB as well asbalances of governments and other statutory bodies held at the ECCB.
Third form:
3. ECCB digital currency (DXCD) for retail use:
Leverages IBM Hyperledger Fabric, a private permissioned secure blockchainnetwork.
An alternative payment instrument to cash, cheques, debit card and wiretransfers within the ECCB jurisdiction.
6/13/2019 Transforming The ECCU Together 9
ECCB Digital EC Currency (DXCD)
Eastern Caribbean Central Bank
A smooth and efficient payment system that can catalyse ECCU growth,
competitiveness, stability and resilience agenda requires a mix of different
payment instruments with different characteristics.
6/13/2019 Transforming The ECCU Together 10
ECCB Digital EC Currency (DXCD) … continued
Eastern Caribbean Central Bank
6/13/2019 Multiple Channels 11
- 80%
+ 50%
+ 40%
+ 60%
- 50%
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Acquires % decreases in cash & cheques
CHEQUES
CASH
CREDIT CARDS
DEBIT CARDS
ELECT. PYMTS.
2019 2025
DXCD
Eastern Caribbean Central Bank
Secure sovereign, digital version of the EC currency operating alongside
cash and other current payment instruments. (not a cryptocurrency/not a
private financial token) :
Legal tender status
DXCD $2.7:USD$1.0
Distributed by Licensed Bank and Non-Bank Financial Institutions in the ECCU;
also available at approved non-financial digital wallet service providers.
Transactions facilitated via digital wallets on smart devices (e.g. desktop, laptop,
tablet, mobile phone)
P2P, B2B,M2M, P2B,B2P, P2M, M2P, B2M, M2B
A token based DXCD, non-interest bearing, retail payment instrument as a
substitute for cash not savings. Not a substitute for money market instruments.6/13/2019 Transforming The ECCU Together 12
DXCD Features
Eastern Caribbean Central Bank
Value-based Model (Hot storage) - The private and public keys are
stored in a secure manner on the owner’s smart device and facilitate
transfers without having to leverage custody services for private keys.
Registered-based Model (Cold storage): This involves custody
services for the holders’ private keys.
Transforming The ECCU Together6/13/2019 13
DXCD Features… continued
Eastern Caribbean Central Bank
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Ease of onboarding
No minimum account balances
No minimum spending amount
Accessible personal digital financial records
Privacy(with KYC & AML/CFT regulatory compliance)
Better user experience
Transactional efficiencies
Full convertibility with physical EC
DXCD : Consumers UVP
Safety of funds
P2P/P2B – Send money to family/friends & businesses within the ECCU at no cost
Eastern Caribbean Central Bank
6/13/2019Transforming The ECCU Together
15
Enhanced CRM
Increased operational
agility
Enhanced operational efficiencies
Potential for new products and services
Seamless regulatory compliance
Enhanced fraud detection/reduction through real time
analytics
Reduction in the fragmentation of
data Financial Institutions
UVP
Lower cost base
Eastern Caribbean Central Bank
6/13/2019 Transforming The ECCU Together 16
Operational Efficiencies• Better cash
management • Simplify paper
documentation• Eliminate time
consuming reconciliations
• Digital records/Real time business intelligence
New Offerings/Business Creation• Ability to leverage speed, accuracy and cost
economy in the exploitation of new opportunities
Innovation
Merchants
UVPLower operational expenditure and cash leakages• No traditional merchant
discount rate (MDR) as imposed by cards
• Lower cost base = higher profitability.
• Sustaining cost reduction efforts by focusing on process
• Sustaining economic viability/future proofing
Expansion of markets and customer base. • Leverage and maximise the potential ECCU
market opportunity for products/ services (P2B)
Eastern Caribbean Central Bank
Transforming The ECCU Together6/13/2019 17
DXCD – As a component of the ECCB Payment System
We are continually reshaping and refining our development process to ensure
the right balance between innovation and stability.
Eastern Caribbean Central Bank
Transforming The ECCU Together6/13/2019 18
DXCD - Innovation guided by regulation
Aligned with ECCB’s statutes governing financial and monetary stability as well as other regulatory parameters for financial transactions
Demand for a more efficient and cost effective payment system to drive the region’s agenda
• Technology• Infrastructure • Human • Operational
Eastern Caribbean Central Bank
Transforming The ECCU Together6/13/2019 19
ECCU Regulatory Entities
ECCB
Regulates and supervises all commercial banks , non bank
financial intermediaries that are licensed under the Banking Act, the interbank market and the Payment
System
ECSRC
Regulates the Eastern Caribbean Securities Market (ECSM) and its
participants; regulates and supervises securities
intermediaries
SRU
Regulates and supervises offshore financial services and all non bank financial intermediaries which are
not licensed under the Banking Act. The latter includes the insurance,
pensions and credit union sub-sectors
ECCU Regulatory Framework
Eastern Caribbean Central Bank
Transforming The ECCU Together6/13/2019 20
• Governance
• Regulatory compliance
• Traceability and monitoring
• System and process integrity
• Legality
• Finality of settlement
• Security
• Key recoverability
Focus of DXCD Requirements
• Risk management
• Segregation of duties
• Access controls
• Data protection
• Data analysis
• Eco-system development
• Policies and procedures
• Training and Education
• Wallet Agnostic
Eastern Caribbean Central Bank
Transforming The ECCU Together6/13/2019 21
DXCD as part of the ECCB Financial
Market Infrastructure
PR
IVA
TE P
ERM
ISSI
ON
ED
DEC
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Rules informed by:
1. The ECCB Agreement Act 1983
2. Banking Act 2015
3. KYC & AML/ CFT
4. Payments System Act 2008
5. Electronic Transactions Act
Eastern Caribbean Central Bank
6/13/2019 22
CONCLUSION - The ECCB DXCD Pilot Project.
The dogmas of the quiet past are inadequate to thestormy present. The occasion is piled high withdifficulty, and we must rise with the occasion. As ourcase is new, so we must think anew and act anew.
Abraham Lincoln, 1862 Annual Message to Congress
Eastern Caribbean Central Bank
Transforming The ECCU Together6/13/2019 23
Eastern Caribbean Central Bank
24IMPACT METRICS PILOT - ( efficiencies) What can the solution improve in relation to current systems, processes, procedures and activities/services?; DXCD Confidence Index.MASS DEPLOYMENT (Metrics related to economic growth, resilience, competitiveness and inclusion)