World Economic Forum Digital Currency Governance Consortium: Vision for 2021 Deliverables BRIEFING PAPER JANUARY 2021 Cover: Maxger, Getty Images Contents 3 Introduction 6 1 Stablecoins’ value proposition for under-served populations 7 Concept note #1 – Investigating the value proposition of stablecoins for financial inclusion 9 Concept note #2 – Investigating the value proposition of stablecoins for aid disbursement 11 2 Regulatory choices 12 Concept note #3 – The role of the public sector and public-private cooperation in digital currency growth 14 Concept note #4 – Regulatory and policy gaps of CBDCs and stablecoins 16 Concept note #5 – Consumer protection risk mapping 18 3 Technology infrastructure and opportunities 19 Concept note #6 – CBDC technology decision framework 21 Concept note #7 – The spectrum of privacy and confidentiality options 23 Concept note #8 – Defining interoperability 25 References 30 Glossary 32 Contributors 32 World Economic Forum 32 Digital Currency Governance Consortium 34 Acknowledgements 35 Appendix: Digital Currency Governance Consortium steering committee © 2021 World Economic Forum. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, or by any information storage and retrieval system. Vision for 2021 Deliverables 2 January 2021 World Economic Forum Digital Currency Governance Consortium: Vision for 2021 Deliverables Introduction The DCGC attempts to provide a neutral, objective and analytical perspective on the pertinent issues. Vision for 2021 Deliverables 3 Digital currency is often hailed as a solution for to pre-existing options. It is important to explore long-standing challenges within the currency the real-world value of these technologies and payments ecosystem, yet little rigorous for financial inclusion and wellness, and their evaluation of its fitness for purpose and viability viability for aid delivery and disbursement. This has been conducted. Critical issues related to issue area begins with a focus on stablecoins, digital currencies remain unresolved, ranging but may expand to develop research related to from consumer protection, education and privacy CBDCs in the future. to technical and regulatory interoperability. The opportunities and risks for digital financial inclusion 2. Regulatory choices. Fragmented regulations have yet to be fully evaluated. may leave vulnerabilities across jurisdictions that various actors can exploit. This can stifle With a variety of central banks now evaluating the innovation by well-intentioned actors who are notion of central bank digital currencies (CBDCs) reluctant to experiment without regulatory in various forms and the independent emergence certainty. First, the roles of central banks and of “stablecoins”, technological, governance and public financial institutions need to be considered, regulatory frameworks are needed to address as well as available options for public-private and gaps and guide digital currency choices and international cooperation. Second, consumer implementation. To establish these frameworks, risks need mapping across different types of careful assessment and dialogue are needed digital currency, comparing such risks with those between critical actors and stakeholders. of pre-existing alternatives. Third, gaps and incompatibilities in current regulatory guidelines The Digital Currency Governance Consortium on stablecoins and CBDCs need to be identified (DCGC) was launched in early 2020 and brings to avoid confusion and uncertainty. together more than 80 organizations from the public and private sectors, civil society and academia to 3. Technology infrastructure and opportunities. provide global perspectives in addressing key policy Central banks and governments will benefit and governance issues. Over the past year, DCGC from a framework that helps guide their working groups have engaged in dialogue, research choices on CBDC technology and platforms, and issue scoping on a number of specific topics. highlighting relevant trade-offs and considering their unique policy and design goals. This This document presents eight concept notes that framework should map the various privacy and outline the core themes and contributions towards confidentiality approaches that are technically digital currency policy and governance that the DCGC feasible and available for digital currencies such is developing in 2021. We welcome your feedback on as CBDCs. Clarity is needed on what it means these notes by emailing [email protected]. for currencies to be considered interoperable, and on the impacts of various forms of The concept notes detail eight priorities that will interoperability on different stakeholders. constitute the DCGC’s written output in 2021. A separate DCGC working group will focus on In addressing these issues, Digital Currency each concept note, and their output will centre on Governance Consortium members have reviewed a either stablecoins or CBDCs, or both. While the wide range of published material, including work by two forms of digital currency are highly distinct, international and intergovernmental organizations. certain policy and governance discussions may The DCGC acknowledges related initiatives in this relate to or involve both. Each concept note aims space, such as the Financial Stability Board (FSB) to describe an output’s intended objectives, scope and the Financial Action Task Force (FATF), many and key questions to be answered. Some of the of which involve DCGC-member organizations, and notions discussed may evolve or change during the the Consortium will seek to augment or amplify their research and writing process. work, as relevant. Above all, the DCGC attempts to provide a neutral, objective and analytical The concept notes pertain to one of three high-level perspective on the pertinent issues. It takes a issue areas described below: research-driven and risk-aware approach and does not seek to promote the development or use of 1. Stablecoins’ value proposition for under- CBDCs or stablecoins. served populations. A key feature touted in favour of stablecoins is their ability to improve access to the financially under-served, relative Vision for 2021 Deliverables 4 FIGURE 1 Digital Currency Governance Consortium: Issue Areas Financial Regulatory and inclusion policy gaps Aid disbursement Value proposition Consumer for the protection under-served Regulatory choices DCGC Defining Technology Role of the interoperability choices public sector Privacy and confidentiality CBDC technology options selection Vision for 2021 Deliverables 5 Below: Simon Carter, Getty Images 1 Stablecoins’ value proposition for under-served populations Vision for 2021 Deliverables 6 Concept Investigating the value proposition of note #1 stablecoins for financial inclusion This deliverable investigates how stablecoins support financial inclusion or provide benefits to financially under-served populations relative to pre-existing forms of money. It explores how stablecoins could address common roadblocks to financial inclusion, how they unlock new opportunities and the limitations and risks they may introduce. Introduction Financial inclusion is a well-recognized global their capabilities and limitations in this area has not issue: 1.7 billion people are “underbanked”, yet been conducted. The DCGC will investigate while small- and medium-sized businesses face the value proposition of stablecoins for supporting challenges connecting with the financial system. financial inclusion for under-served populations, Users may not be able to access financial services; using three to five diverse scenarios for individuals if they can, those services may not be high quality, and small businesses. It will compare stablecoins’ suitable or affordable. The World Bank defines capabilities and limitations with those of pre-existing financial inclusion as the ability for individuals and forms of money, both electronic and physical businesses to access useful and affordable financial (i.e. cash). The aim is to provide policy-makers, products and services that meet their needs. businesses, civil society organizations and digital currency issuers with a better understanding of the Stablecoins could potentially resolve challenges potential value (or lack of value) that stablecoins and unlock opportunities for financial inclusion bring to financial inclusion, to help focus efforts and around the world. However, a detailed analysis of enhance global understanding. Objectives The deliverable has the following objectives: reliability, consumer protections, settlement finality and other issues. – Help policy-makers and stakeholders understand how stablecoins can stimulate – A categorization of roadblocks, challenges and financial inclusion (if at all) and provide benefits costs that create barriers to financial inclusion, to the financially under-served, relative to pre- such as processing speeds, connectivity and existing forms of money. device requirements, technology gaps, total cost, identification and literacy. – Identify the instances where stablecoins do not clearly solve challenges with pre-existing – Notable government policy opportunities or forms of money; where they may introduce new challenges for achieving financial inclusion with limitations or risks (particularly to the financially stablecoins. vulnerable); or where they may aggravate the “digital divide.” The topics below, while important, are beyond the scope of this initial phase of work: