Central bank digital currency and Day count conventions: Difference between pages

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(CBDC).
The day count convention determines how interest accrues over time in a variety of transactions, including bonds, swaps, bills and loans. Interest is usually expressed to accrue at a rate per annum (the reference period). It is often due and payable at shorter intervals, usually a number of months (the interest period).
The day count convention regulates how the parties are to calculate the amount of interest payable at the end of each interest or other period. It is commonly expressed as a fraction. The numerator will be the convention for the number of days in the period - usually actual or a notional 30. The denominator is the convention for the number of days in the reference period - often 360 or 365.
Conventions vary, depending on the market type and location, and the currency in question. For example, euro-denominated bonds are usually calculated on an actual/actual basis, while fixed rate non-euro denominated bonds are often calculated on a 30/360 basis. The London interbank market, on the other hand, operates on the basis of actual/360, except where the currency is sterling, for which the London interbank convention is actual/365.
Commonly used day count conventions are considered below, but first it is important to bear in mind the various business day conventions that may apply. These regulate the start and end date of each period.


A CBDC is a digital currency issued and administered by a central bank.
==Business day conventions==


For example, the Bahamanian Sand Dollar.
===No date adjustment===
Cycle dates are not adjusted for weekends or holidays and are forced to land within a cycle month.


===Following business day/next good business day===
Dates are adjusted for weekends and holidays to the next good business day.


Important potential benefits of CBDCs include:
===Preceding/previous good business day===
* Speed
Dates are adjusted for weekends and holidays to the previous good business day.
* Transparency
* Reduced costs
* More efficient cross-border remittances


===Modified following/modified business day===
Dates are adjusted to the next good business day unless that day falls in the next calendar month in which case the date is adjusted to the previous good business day.


:<span style="color:#4B0082">'''''Bank of England considering CBDC'''''</span>
===End of month – no adjustment===
Dates are adjusted to land on last day of the month.


:"A Central Bank Digital Currency (CBDC) [in the UK] would allow households and businesses to directly make electronic payments using money issued by the Bank of England.  
===End of month – previous good business day===
Dates are adjusted to the last day of the month but if that day is a weekend or holiday, then it is adjusted backward to the previous good business day.


:We have not yet made a decision on whether to introduce CBDC.
===Two business days prior to third Wednesday of month===
Dates generated are two business days prior to the third Wednesday of the month (used in conjunction with Eurodollar futures).


:The Bank [of England] provides physical money in the form of banknotes, which can be used by households and businesses to make payments.
===Deposit rollover method===
 
Each date is set so it occurs on the same day of the month as the previous date. Each date is set to the next good business day but no
:We also provide electronic money, but this can only be used by banks and selected financial institutions.
dates may be adjusted past the last good business day of the month.
 
 
:A Central Bank Digital Currency would make electronic money, issued by the Bank of England, available to all households and businesses.
 
:This would allow everyone to make electronic payments in central bank money.
 
:... CBDC is sometimes thought of as equivalent to a digital banknote, although in some respects it may have as much in common with a bank deposit.
 
:Any CBDC would be introduced alongside – rather than replacing – cash and bank deposits."
 
:''Bank of England - 2020.''
 
 
:<span style="color:#4B0082">'''''Improving cross-border payments'''''</span>
 
:"Many central banks are researching CBDC, and there are clear opportunities for CBDCs to improve cross-border payments and protect monetary sovereignty."
 
:''Bank for International Settlements, Paper 115 - March 2021''.
 
 
:<span style="color:#4B0082">'''''Supporting new technologies'''''</span>
 
:"The introduction of a [UK] Central Bank Digital Currency would be a significant development which could help support the adoption of new technologies (e.g. blockchain) in financial services.
 
:There is concern that retail CBDC could lead to increased data being held on the consumer. One option would be to follow the proof of concept developed by the European System of Central Banks, which explored allowing users to remain anonymous for low value transactions, but still maintaining AML/CTF checks for larger transactions, and ensuring that identity and transaction history were not available to central banks or the intermediaries."
 
:''Kalifa Review of UK Fintech - February 2021''.
 
 
 
== See also ==
* [[Account]]
* [[Altcoin]]
* [[Anti money laundering]] (AML)
* [[Bank of England]]
* [[Bank for International Settlements]]
* [[Bitcoin]]
* [[Blockchain]]
* [[Britcoin]]
* [[Central bank]]
* [[Central bank money]]
* [[Commercial bank money]]
* [[Countering terrorist financing]] (CTF)
* [[Crypto-assets]]
* [[Cryptocurrency]]
* [[Cryptography]]
* [[Currency]]
* [[Deposit]]
* [[Digital currency]]
* [[Digital euro]]
* [[Distributed ledger]]
* [[e-krona]]
* [[e-money]]
* [[Ether]]
* [[European System of Central Banks]]
* [[Fiat currency]]
* [[Gold standard]]
* [[Libra]]
* [[Monetary]]
* [[Money]]
* [[Multi-CBDC arrangement]]
* [[Proof of concept]]
* [[Ripple]]
* [[Sand Dollar]]
* [[Sovereignty]]
* [[Stablecoin]]
* [[Wholesale central bank digital currency]] (wCBDC)
 
 
==External links==
* [https://www.bankofengland.co.uk/paper/2021/new-forms-of-digital-money New forms of digital money - Bank of England - June 2021]
 
* [https://www.bankofengland.co.uk/research/digital-currencies Central bank digital currencies - Bank of England]
 
* [https://www.bis.org/about/bisih/topics/cbdc.htm Bank of International Settlements, Central Bank Digital Currency]
 
* [https://www.youtube.com/watch?app=desktop&v=srJMnI8WFRY ACT Webinar, Central Bank Digital Currencies, Overview of the Bank of England's Work, March 2021]]
 
[[Category:Accounting,_tax_and_regulation]]
[[Category:The_business_context]]
[[Category:Identify_and_assess_risks]]
[[Category:Manage_risks]]
[[Category:Risk_frameworks]]
[[Category:Cash_management]]
[[Category:Financial_products_and_markets]]
[[Category:Liquidity_management]]
[[Category:Technology]]

Revision as of 11:50, 18 June 2013

The day count convention determines how interest accrues over time in a variety of transactions, including bonds, swaps, bills and loans. Interest is usually expressed to accrue at a rate per annum (the reference period). It is often due and payable at shorter intervals, usually a number of months (the interest period).

The day count convention regulates how the parties are to calculate the amount of interest payable at the end of each interest or other period. It is commonly expressed as a fraction. The numerator will be the convention for the number of days in the period - usually actual or a notional 30. The denominator is the convention for the number of days in the reference period - often 360 or 365.

Conventions vary, depending on the market type and location, and the currency in question. For example, euro-denominated bonds are usually calculated on an actual/actual basis, while fixed rate non-euro denominated bonds are often calculated on a 30/360 basis. The London interbank market, on the other hand, operates on the basis of actual/360, except where the currency is sterling, for which the London interbank convention is actual/365.

Commonly used day count conventions are considered below, but first it is important to bear in mind the various business day conventions that may apply. These regulate the start and end date of each period.

Business day conventions

No date adjustment

Cycle dates are not adjusted for weekends or holidays and are forced to land within a cycle month.

Following business day/next good business day

Dates are adjusted for weekends and holidays to the next good business day.

Preceding/previous good business day

Dates are adjusted for weekends and holidays to the previous good business day.

Modified following/modified business day

Dates are adjusted to the next good business day unless that day falls in the next calendar month in which case the date is adjusted to the previous good business day.

End of month – no adjustment

Dates are adjusted to land on last day of the month.

End of month – previous good business day

Dates are adjusted to the last day of the month but if that day is a weekend or holiday, then it is adjusted backward to the previous good business day.

Two business days prior to third Wednesday of month

Dates generated are two business days prior to the third Wednesday of the month (used in conjunction with Eurodollar futures).

Deposit rollover method

Each date is set so it occurs on the same day of the month as the previous date. Each date is set to the next good business day but no dates may be adjusted past the last good business day of the month.

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