Bank For International Settlements Research Articles

Implications of a U.S. CBDC for International Payments and the Role of the Dollar

Technological advances in recent decades have brought about a wave of private-sector innovation in payments and have led central banks to explore a variety of improvements to their payment systems, including the possibility of issuing a central bank digital currency (CBDC). Survey evidence from the Bank for International Settlements (BIS) shows that over 90% of central banks are exploring CBDCs (Kosse and Mattei, 2022). The Federal Reserve is also exploring the implications of, and options for, introducing a CBDC.

Basel Capital Regulations over Pre and Post Basel III Regime: An Indian Scenario

The adequacy of capital has become a concerned issue because banks being the highly leveraged sector face high risks. So, it is desirable to know at which level of capital is adequate for banks. The focus on capital have existed for a long time but now the definition of capital has changed for banking business due to changes and advancement in banking operations. A bank with higher capital adequacy ratio is considered safe and capable to meet its obligations. The Reserve Bank of India requires all scheduled commercial banks to meet the capital level as stipulated under Basel III norms to comply with international standards. According to the guidelines of Bank for International Settlements (BIS), the banks should maintain that level of capital where a bank can easily recover unexpected shocks and crisis. The adequacy of capital is the measure of financial soundness of banks and indicator of financial health of banks. The banking activities are exposed to various kinds of risks and to manage these risks, banks must maintain sufficient capital. Therefore, it is necessary to set the regulatory guidelines for limits of capital hold by banks. Thus, the present study intends to examine the trends and consistency of capital adequacy ratio of twenty one Indian public sector banks for the period of ten years (2008–2017). The results conclude that the level of capital ratio as per Basel III norms maintained by Indian public sector banks determines the bank’s strength and position.

Changes in repo markets and the necessity for CCPs in Korea

In 2022, US financial regulators proposed to mandate a single central clearing mechanism for treasury bonds and repo transactions to stabilize financial markets. The systemic risks inherent in repo markets were first highlighted by the global financial crisis and, as a response, global financial authorities such as the Financial Stability Board (FSB) and Bank for International Settlements (BIS) have advocated for the introduction of a central counterparty (CCP). This study examines the structural characteristics of Korean repo markets and proposes the introduction of CCPs as a way to mitigate systemic risk. To this end, the author analyzes the structural differences between US and European repo markets and estimates the potential consequences of introducing CCP clearing in local repo markets. In general, CCPs offer two benefits: they can reduce required capital through netting in multilateral transactions, and they can mitigate the effects of risk transfer by isolating counterparty risk during periods of turbulence. In Korea, the latter effect is expected to play a pivotal role in mitigating potential risks.

The Third SNB-FRB-BIS High-Level Conference on Global Risk, Uncertainty, and Volatility: Monetary Policy and Banking Regulation under Elevated Uncertainty

The Swiss National Bank (SNB), the Division of International Finance of the Federal Reserve Board (FRB), and the Bank for International Settlements (BIS) jointly organized the third High-Level Conference on Global Risk, Uncertainty, and Volatility on November 14 and 15 of 2023. The conference brought academics and policymakers together to discuss the many sources of risk and uncertainty under which monetary policymakers and bank regulators operate, recent advances in measuring the multi-faceted nature of uncertainty, and how policymakers respond to these challenges.

JURIDICAL STUDIES OF THE LEGAL STATUS OF DIGITAL RUPIAH IN THE CONTEXT OF MODERNIZING FINANCIAL MARKET INFRASTRUCTURE

The rise of exchange rates other than the official state currency in the digital world raises its own problems. The development of the digital economy that is currently developing is supported by digital economic infrastructure, one of which is the official state medium of exchange. Therefore, this is a demand for the public's need for official state exchange instruments that can apply in the digital world. This was then answered by Bank Indonesia through the concept of Digital Rupiah and its derivatives in various Bank Indonesia Regulations. However, there are problems regarding the Digital Rupiah policy and the implementation of secure use of the Digital Rupiah sistem. This research was conducted using a normative juridical method, and the writing stage was carried out through a literature search which was carried out by examining secondary data including primary legal materials, literature, articles, opinions and teachings of experts and their implementation in laws and regulations. Based on the discussion, it can be concluded that policies related to Digital Rupiah as a modernization of financial market infrastructure are still contained in various regulations, including Law Number 4 of 2023, Bank Indonesia Regulation Number 23/11/PBI/2021, and Bank Indonesia Regulation Number 23/10 /PBI/2021. Digital Rupiah security arrangements in Indonesia refer to Bank for International Settlements (BIS) guidelines and include secure technology infrastructure, cloud-based cybersecurity services, risk management and compliance sistems, as well as application and infrastructure security integration through DevSecOps. Reliability certificates are regulated in Government Regulation Number 71 of 2019.

The Idea of Digital Currency for India based on Blockchain Technology: A Conceptual Study

This paper aims to explain the idea of digital currency, its prospects in the Indian context, its role in digital transformation, and how it would be beneficial to our country, businesses, and different user segments. As in the phase of digital transformation, a constant improvement in technology is happening day by day globally. In today's virtual world, where everything is on its way forward, why should we not develop our economy accordingly so that we will be able to strengthen ourselves globally? And we had to begin the work of transformation by converting our currency to digital mode, i.e., digital currency, which is accessible in virtual or electronic form rather than physical.
 The paper opted for an exploratory study using existing literature, case studies, books, electronic resources, speeches of various officials of the central bank, and experts on national as well as international platforms, which gave clarity on some of the core elements involved in digital currency, like the concept of blockchain with its kinds and segments like wholesale & retail and also with use case data in different counties across the globe, strengths, and weaknesses; initial coin offerings (ICO); and central bank digital currency (CBDC).
 In this paper, data were complemented by documentary analysis, in which literature like the concept note of the Reserve Bank of India, the discussion paper of the Bank of England, and existing literature regarding centrally backed currency were studied for the clarity of the above work through figures like the money flower issued by the BIS (Bank for International Settlements). The paper concludes with discussion, suggestions, and future directions, with the conclusion that the user segments for the virtual currency backed by a central bank are classified.

A Bayesian estimation approach of random switching exponential smoothing with application to credit forecast

We introduce an efficient Markov Chain Monte Carlo sampler in precision-based algorithms for the estimation of the Random Switching Exponential Smoothing model, a versatile forecasting mechanism for time series data characterized with changing trends. Through a series of simulation experiments, RC-MCMC exhibits superior parameter estimation accuracy, particularly for datasets featuring low persistence trends. Furthermore, an empirical evaluation using the Bank for International Settlements’ quarterly time series data on the non-financial sector’s total credit relative to GDP validates the findings. The out-of-sample results indicate that the proposed approach outperforms its counterparts in estimating and forecasting accuracy for trending time series data.

Front and Back Covers, Volume 39, Number 4. August 2023

Front and back cover caption, volume 39 issue 4CBDC'S BOTANICAL IMAGERYIn the ever‐evolving landscape of global finance, the Bank for International Settlements (BIS) has cultivated a botanical metaphor to illustrate the concept of central bank digital currency (CBDC). In this issue, Swartz & Westermeier explore this metaphor (illustrated here by Matthew Kurina), presenting a fascinating anthropological perspective on the intersection of technology, economy and imagination.The BIS's metaphorical ‘money tree’ positions the central bank as the sturdy trunk, providing stability and support to the financial ecosystem. The branches, representing various financial institutions, extend from this trunk, while the leaves, symbolizing the diverse forms of money, flourish at the periphery. This metaphor not only encapsulates the hierarchical structure of the financial system but also naturalizes the concept of CBDC, subtly implying its inevitability and organic integration into the existing monetary ecosystem.The BIS uses the ‘money flower’, another botanical metaphor, to classify the past, present and future forms of money. The petals of this flower represent different characteristics of money, such as whether it is digital or physical, centralized or decentralized. This metaphorical taxonomy provides a framework for understanding the evolution of money and the potential role of CBDCs in the future financial landscape.However, while visually appealing and conceptually insightful, these botanical metaphors also raise anthropological questions. They mask the sociopolitical implications of CBDCs, presenting them as natural phenomena rather than human‐made constructs. This portrayal glosses over the potential power dynamics, control mechanisms and geopolitical tensions inherent in adopting CBDCs.As we stand at the precipice of a new era in digital currency, these metaphors serve as a reminder of the need for critical engagement with the narratives that shape our understanding of complex financial technologies. The ‘money tree’ and ‘money flower’ are not just symbols of financial evolution, but also tools of persuasion, framing our perception of the future of money.CULTURAL EVOLUTION IN THE AGE OF NFTsThe Bored Ape Yacht Club (BAYC), an intriguing collection of algorithmically generated cartoon ape NFTs etched into the Ethereum blockchain, has not only sparked a cultural phenomenon but also inspired the first ever NFT‐themed restaurant, Bored & Hungry, in Long Beach, California, USA.Why apes? A BAYC founder suggests it is a response to the existential ennui that follows the attainment of vast wealth through crypto investments. ‘Once you've achieved unimaginable wealth, what's next? You join a swamp club with a bunch of apes and embrace the unusual’. Or, you could always enjoy a burger.Yet, these seemingly whimsical endeavours are more than just a pastime for the crypto rich. NFTs signify a profound shift in the political discourse surrounding blockchain technology. They challenge the financialization of blockchain, aligning with a contemporary wave of anti‐finance far‐right populism and potentially offering an alternative to the prevailing capitalist democratic order.In this issue, Bill Maurer delves into the uneasy relationship between the concept of non‐fungibility and anthropological theories of embedded or social economies. This tension, he suggests, could pave the way for a post‐neoliberal future, one that is not rooted in finance but in regenerative models for future social worlds.From an anthropological perspective, the rise of NFTs and blockchain technology represents a fascinating evolution of societal norms and values. It challenges our traditional understanding of ownership, value and community, creating a new form of ‘digital tribalism’ where belonging is tied to shared digital assets. Furthermore, the boredom expressed by the crypto wealthy and their subsequent retreat into a virtual ‘swamp club’ can be seen as a form of digital ‘potlatch’, a ceremonial feast of the Kwakiutl, where status is asserted not through wealth accumulation, but through its ostentatious disposal.As blockchain technology continues infiltrating all aspects of life, anthropology grapples to understand its impact. The cultural shift it brings is as significant as it is complex, and its full implications are yet to be unravelled.

The money tree: Exploring central bank digital currency blockchain imaginaries

Central banks worldwide are developing, piloting and launching new central bank digital currencies (CBDCs). As the hub for the central banking community, the Bank for International Settlements (BIS) promotes a curiously botanical CBDC imaginary. From ‘money flowers’ to ‘tree trunks’ and a ‘strong canopy’, This helps to naturalize CBDC without clarifying its sociopolitical implications or envisioned monetary future, such as geopolitical tensions and financial fragmentation, new modes of financial interaction or the strengthened role of central banks. While omitting the paradoxes and ambivalences of CBDC, the imaginary of the BIS structures the enfolding discourses and allows the bank to function as a think tank for financial policy‐making.

Global Public Debt Since 1995: Long-Term Trends, Current Phase, Medium-Term Outlook for Economic Growth

Topic. The paper aims to identify long-term trends in global public debt (since 1995), provide its current overview (the magnitude of debt, concentration levels among participants and instruments, risk factors in the current phase of debt accumulation) and estimate its impact on global economic development over the medium term. This analysis has significant scientific and practical relevance due to the unprecedented character of factors affecting global level of indebtedness in the past few years (the Covid-19 pandemic since 2020 and the biggest military conflict in Europe since the Second World War since 2022). Methods. The main sources for the research were reports, outlooks and data bases of national regulators and international organizations (International Monetary Fund, World Bank, Bank for International Settlements, Organization for Economic Co-operation and Development) concerning public debt, research in this field conducted by leading research centers and financial market participants. Results. Two major periods in global debt development over time are shown: 1995 – 2007-08 with stable relative global public debt level, and since 2008 – rising levels of public debt. High levels of concentration in the global debt market and even in higher degree the government securities market are analyzed. These markets are characterized by the highly uneven distribution of debt among advanced and developing economies, state and local governments (central governments are main borrowers), instruments (predominantly global debt is issued through bonds nominated in domestic currencies with a straight fix rate). Risk factors in the current (since 2010) wave of global debt accumulation are described: 1. the magnitude of accumulated debt, its higher rate of growth and distribution among countries; 2. debt accumulation during a prolonged period of weak economic growth and investment activity in the 2010s; 3. the consequences of Covid pandemic and the military conflict in Ukraine. Economic repercussions of a high level of the country’s indebtedness, including its threshold level, are shown. Many key participants of the global public debt market (especially advanced economies) are exposed beyond such threshold. Policy tools for reducing public debt are listed. Preliminary estimates of the medium-term impact of the global debt market conjuncture on global economic development are given. The existence of self-amplifying risks of global stagflation and public debt crisis is revealed. Discussion. The impact of extraordinary factors affecting economic development in the world from 2020 on the global public debt market requires further research.

The impact of digitalization on the banking sector: Evidence from fintech countries

Banking services are now branded and are provided in distinct ways. It has been proven that the development of new financial services and products substantially impacts bank performance. This paper investigates the effect of e-banking services on the performance of banks before the pandemic. The study looks at a sample of 24 nations, including leading fintech nations. Data from 2012 to 2019 was gathered from the World Development Indicators and the Bank for International Settlements (BIS) databases. The findings show a significant positive correlation between cashless payments and banks' ROA. The performance of a bank is significantly impacted by mobile subscribers. In fact, customers are willing to use mobile transactions in place of traditional bank accounts. Banks' ability to generate revenue from assets (in the form of credits) is consequently restricted, which has an impact on their ability to earn a profit. The research suggests a range of policy implications and policy interconnections between digital financial services, banking stability, and efficiency. The banking sector has become more digitalized after the recent pandemic. To date, there is very little literature that has focused on the effect of digitalization on the banking sector before the Covid-19 crisis. The current study contributes to the literature by providing an overview of the relationship between the banking industry and digitalization before the latest pandemic for some leading fintech countries. This research will contribute to later comparisons between the different situations of the banking sector pre- and post-pandemic.

EXTERNAL LOBBYING FOR GLOBAL FINANCIAL MARKET STANDARDS AND LEGAL PROTECTION OF RUSSIAN MONETARY AND FINANCIAL SOVEREIGNTY

Introduction. The article is connected with the importance of financial and legal analysis of the level of expediency and effectiveness of the use of external regulatory standards in the financial legislation of Russia as “global initiatives” in order to achieve standardization of monetary and financial regulation. It is noted that the process of introducing legislative initiatives into the financial law of the Russian Federation is subject to external influence through lobbying by self-regulatory and international financial organizations of global financial market standards. It is shown that external lobbying has not only positive, but also negative aspects that threaten the monetary and financial sovereignty of the state. Materials and methods. The most significant global codes of norms and principles of international financial organizations, the provisions of which are lobbied at the level of legislative initiative, are analyzed. Regulatory and analytical materials were used to assess the need for external influence of global financial standards on the legal norms of the Russian Federation in the field of monetary and financial regulation. The synergetic method in law, used by international organizations for the legal regulation of financial markets, is critically evaluated. Results. The lack of clear criteria for the responsible behavior of systemically important and other participants in financial markets in global standards was noted. There is abstract content of legally significant concepts of obligations and responsibilities in the global codes of the IMF, the Bank for International Settlements, the Council for Financial Stability on the principles of transparency of financial markets, on the set of principles of good faith behavior of participants in foreign exchange transactions, on the transparency of balances of payments, etc. Discussion and conclusions. The danger of external lobbying for “soft law” of financial markets lies in the fact that these norms are adopted without discussion at the UN level and without taking into account the interests of UN member states. Global financial standards threaten the monetary and financial sovereignty of states, creating a supranational monetary and financial structure of global regulation, bypassing the applicable law of national states. Not all global financial standards contribute to the development of the Russian financial sector in the context of a national economic growth strategy.

The Credit Suisse CoCo wipeout: Facts, misperceptions, and lessons for financial regulation

The Credit Suisse CoCo wipeout: Facts, misperceptions, and lessons for financial regulation

"SYNTHETIC CBDC" is not a "CBDC" CBDC and its Core Features (e₹-Whole Sale and e₹-Retail)

For a Nations Economy to function successfully, its citizens must have confidence in its money and payment services. The Reserve Bank of India, as the Nations Central Bank, works to maintain the publics confidence by development:~ Monetary Stability.~ Financial Stability, and also~ A Safe and Efficient Payment System.A CBDC can be defined as a Form of Money and it is denominated in Fiat Currency (Central Bank Money), in an Electronic Form (Virtual), and which is a liability on the Central Banks Balance Sheet similar to Cash and Central Bank Deposits showing in the Balance Sheet of Reserve Bank of India.It could be considered as Smart Cash with unique characteristics and enabled by a Digital Form.The Bank for International Settlements (BIS) defines A CBDC as a purely Digital Bank Note that could be used by Individuals to Pay to the Businesses, Shops or each other (Called a Retail CBDC), or between the Financial Institutions to settle their trades in Financial Markets (Called a Wholesale CBDC).Abbreviations:CBDC=Central Bank Digital Currency.KYC=Know Your Customer.AML=Anti-Money Laundering.CTF=Counter-Terrorist Financing.PPI=Prepaid Payment Instruments.

The Current Status of Central Bank Digital Currencies and Their Development

Relying on the big data era, economic growth is also undergoing an accelerated transformation towards digitalisation and has triggered digital changes in finance due to the accelerated development of information technology and the emergence of technologies such as blockchain, artificial intelligence, and big data. This is why the BIS (Bank for International Settlements) received worldwide attention when it introduced the concept of a central bank digital currency (CBDC) in 2017. CBDC has many advantages, will inject new vitality into the global monetary and financial system, may become a new cornerstone of payment transactions and future de-velopment; But it also brings potential risks and complex policy issues. In this paper, through a review of the research literature on CBDC in recent years, with a specific example of China's central digital currency (DC/EP), this paper provides a concise demonstration of the current state of CBDC and its development.

Znaczenie dolara amerykańskiego jako waluty kluczowej w międzynarodowym systemie walutowym

Purpose – The aim is to assess the importance of the US dollar as the key world currency after 2008. Research method – The basic research methods used in the article are the study of world literature and the analysis of statistical data delivered by the European Central Bank, the Bank for International Settlements, the International Monetary Fund and SWIFT. Results – Although there has been discussion for several decades about the likelihood of the US dollar losing its position in the International Monetary System, it still maintains its status as the most important international currency. The dominant political and military position of the United States, the size of the economy and its still key share in world trade, and, above all, the market of instruments denominated in American currency and the dominant share of the dollar in the currency market, confirm the current position of the US dollar. This does not mean, however, that it will retain its current position. Analyzing historical changes in the leadership position among international currencies, one should not expect a revolution. Originality / value / implications / recommendations – The analysis of the importance of the US dollar as the key currency in the IMS, undertaken in the article, shows the importance of the problem and implies the need to carry out further research on this issue.

Криптоактивы: экономическая природа, классификация и регулирование оборота

This article is devoted to the study of the economic nature of cryptoassets, the development of their original classification, and the determination of the main directions of regulation of their turnover. These topics are the objects of modern discourse of international organizations such as the International Monetary Fund (IMF), the World Bank (MB), the Group of 7 (G7), the Group of 20 (G20), the World Trade Organization (WTO), the Organisation for Economic Co-operation and Development (OECD), the Bank for International Settlements (BIS), and the Financial Stability Board (FSB). The study reviews the modern discourse of international organizations regarding cryptoassets, presents an interpretation of cryptoassets as a new class of financial assets, justifies the classification of cryptoassets, and identifies the main types and economic characteristics of digital assets. The study was conducted using a system-functional and system-structural method. As a result of this study, it is concluded that the activities of international organizations are focused on developing recommendations and principles for regulating transactions with cryptocurrencies and global stablecoins, prudential supervision of their issuers, unifying approaches to taxation, and countering illegal transactions using cryptoassets. The study concluded that crypto-assets are private digital assets that are recorded digitally in a distributed ledger and can be used as a means of exchange and/or investment tool and/or means of access to goods and services of issuer. According to the authorʼs classification crypto-assets are divided into two main types: virtual currencies and digital tokens. Virtual currencies are a means of exchange or payment as well as a means of saving. The two main subtypes of virtual currencies are cryptocurrencies and stablecoins. Digital tokens are issued for specific investment functions or consumer purposes. Tokens can be divided into investment tokens and utility tokens. The study also finds that there is no international regulation of cryptoassets turnover. National regulation is significantly differentiated between countries due to the lack of common interpretation and classification of cryptoassets and different assessments of economic risks of their turnover for national financial systems. In most developed countries: the USA, EU countries, UK, Switzerland, etc. – a flexible approach to regulating various types of cryptoassets and their issuers prevails. In emerging market countries such as China, Turkey, and Russia, regulation is more stringent and characterized by the widespread use of prohibitive measures. The main problem of the legal regulation of cryptoassets in Russia is its fragmentation and the predominance of a prohibitive bias. Modern regime of regulation of cryptoassets in Russia is weakly related to their economic nature and is not equivalent to the risks of turnover of cryptoassets.

Empirical Determinants of Derivative Markets in Asia, Latin America and Sub Saharan Africa

The paper examined the relationship between the derivative markets and financial markets depth, efficiency, stability and access in Asia, Latin America and Sub-Sahara Africa. A panel logit model was applied from the period 2009 to 2017 on the financial market development data collected for countries in Asia, Latin America and Sub-Sahara Africa. The results of the panel logistic regression model positively revealed that derivative markets are influenced positively by the improvement to financial access (measured by stock market capitalization to GDP) and financial efficiency (measured by net interest margin) of the financial markets of the regions studied. However, an examination of financial depth and financial stability were observed to have an adverse propensity for the derivative market development. Therefore, countries in Asia, Latin America and Sub-Sahara Africa are recommended to significantly focus on improving financial efficiency and financial access within their respective financial markets. Further a document review was carried on the publications of the Committee of Global Financial System (CGFS) and Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlement (BIS). It is recommended that policy makers must promote greater respect for market autonomy, strengthen legal and judicial systems, boost regulatory independence and effectiveness, deepen the domestic investor base, pursue bi-directional international participation while preparing for spill overs and develop robust financial market infrastructure to facilitate the establishment of vibrant derivative markets. Keywords: Bank for International Settlements (BIS), Derivative markets, financial access, financial depth, financial efficiency, financial stability and panel logit model. DOI: 10.7176/RJFA/13-18-03 Publication date: September 30 th 2022

The Role of Institutions: A Cross‐country Analysis of Renminbi Trading in Foreign Exchange Markets

AbstractWe explore how China's geographically targeted policies impact RMB overseas use individually or in combination. The policies include swap agreements, clearing banks, investment quotas, and direct trading between Chinese renminbi (RMB) and non‐USD currencies. Adopting a fuzzy‐set qualitative comparative analysis and using Bank of International Settlements cross‐country data on foreign exchange markets, we find that institution building has lowered the barriers to international adoption of the RMB. Specifically, for countries economically close to China, high RMB trading is explained by either (i) having a clearing bank in the host market and direct quotations between the RMB and the local currency, or (ii) being a financial center and having access to the Chinese capital market. This combination of policies is explained by the creation of (i) “trading posts” that provide RMB liquidity abroad, and (ii) channels that allow actors to “recycle” offshore RMB funds. We triangulate our results with interviews conducted with senior People's Bank of China officials.

Политическая роль проекта «Данбар» в развитии глобальной финансовой архитектуры

Digitalization is one of the main transformation processes of the modern system of global interactions, changing the nature of social links not only at the technical and economic, but also at the political level. Herewith, technological innovations also become instruments of political influence. The present article analyzes the management structure of one of the leading participants in the global financial market — the Bank for International Settlements (hereinafter — BIS) and highlights the important place the BIS occupies in the global financial architecture on the example of the Dunbar project, being developed in its innovation hub. In digital age the BIS has assumed a new leading role in exploring, developing and testing digital innovations in the central banking sector. It is noted that potential to use the BIS for political purposes is great, given that the Dunbar project will have far-reaching consequences for the structure of modern international relations.