bridging financial innovation and regulation: the eastern … · 2019-07-26 · eastern caribbean...

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


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.


Strategic Relevance


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.


Strategic Relevance … continued


6/13/2019 Transforming The ECCU Together 5

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.



ECCB Notes and Coins in Circulation


“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




ECCU Economic Imperative

Resilience

& Competitiveness

Financial Inclusion

Economic Growth

DXCD Objectives


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.


ECCB Digital EC Currency (DXCD)


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.


ECCB Digital EC Currency (DXCD) … continued


6/13/2019 Multiple Channels 11

- 80%

+ 50%

+ 40%

+ 60%

- 50%

FUTU

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DX

CD

Acquires % decreases in cash & cheques

CHEQUES

CASH

CREDIT CARDS

DEBIT CARDS

ELECT. PYMTS.

2019 2025

DXCD


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


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.


DXCD Features… continued



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


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



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)



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.



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



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



• 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



DXCD as part of the ECCB Financial

Market Infrastructure

PR

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ERM

ISSI

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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


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


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)

bridging financial innovation and regulation: the eastern … · 2019-07-26 · eastern caribbean...

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