$
Central Bank
Digital Currency
Overview
With the increasing rise in cryptocurrencies
And absence of regulation, government-backed
digital currencies has been closely studied and
gaining more attention.
With little or no e ff o r t attempting to regulate
elusive cryptocurrencies with no issuer or
Centre of operation, the need to study CBDCs
is driven by international organizations such
as the Bank for International Settlements, the
IMF and the World Bank.
What are CBDCs
• A digital form a fiat currency of a country
that is issued and regulated by the
competent monetary authority of the
country.
• They came into existence largely because of
threat of cryptocurrencies to present- day
banks that operate under the purview and
control of a country’s regulatory authority.
• They differ across four major design
parameter:
• Users
• Scope
• Architecture
• Technology
Features of CBDCs
The f eat ur es of a CBDC depend on t he object iv es pur sued
with the introduction of CBDCs:
Difference between
CBDCs and Cryptos
• Access and control to blockchain is limited to a
select group of approved participants vs
decentralized public ledger.
• Traditional money in digital form vs virtual
currency.
• Issued and governed by a country’s central bank
vs issuance by non-central authority.
• Potentially more universally accepted for
payments vs regulatory constraints preventing
payments with crypto.
• Value determined by monetary policy vs value of
crypto determined by market forces.
• CBDC issued on a permissioned/private
blockchain network vs public network in crypto.
Identifying Users and Needs
A broad range of potential users. Some projects include top tier intermediaries(TTIs)
only, some include all intermediaries (TTIs and non-TTI PSPs), while others seek to
include all wholesale or even all retail transactions.
Foundational design
considerations
Source: The Bank for International Settlements
Users Needs
• The consumer’s prime need is that the CBDC
embodies a cash-like claim on the central bank
transferable in peer-to-peer settings.
• consumers are unlikely to adopt a CBDC if
it is less convenient to use than today’s
electronic payments. Cash-like safety and
convenience of use lead to the foundational
design consideration for CBDC.
• Two further consumer needs are easy,
universal access and privacy by default.
• The final consumer need we consider is that
CBDCs should also enable cross- border
payments i.e allowing consumers to hold
foreign digital currencies directly
Scope
• The system may extend only to monetary
arrangements or to payment arrangements or it
may include elements of both
Potential CBDC Retail Structure
Source: The Bank for International Settlements
Technology
The infrastructure requirements differs substantially
across the three architectures. This could be based on
conventional centrally controlled database or on a novel
distributed ledger.
The difference between these two lies in how data are
updated:
• Conventional: resilience is typically achieved by
storing data over multiple physical nodes, which are
controlled by one authoritative entity – the top node
of a hierarchy. Could be used for the direct CBDC
• DLT-based: the Ledger is managed jointly by
different entities in a decentralised manner and
without a top node. Each update has to be
harmonised between the nodes of all entities. Could
be used for Indirect CBDC
Technology
Source: The Bank for International Settlements
Access Technology
The third layer of the pyramid looks at who should have access. The first
option which is conventional is to tie ownership to an identity. Second is for
the central bank to honour claims when the CBDC user demonstrates
knowledge of an encrypted value.(digital tokens)
Source: The Bank for International Settlements
References
https://www.ledgerinsights.com/imf-pros-cons-central-bank-digital-currency-cbdc/
EBI Working Paper Series Douglas W. Arner/Ross P. Buckley/ Dirk A. Zetzsche/
Anton N. Didenko After Libra, Digital Yuan and COVID-19: Central Bank Digital
Currencies and the New World of Money and Payment Systems 11/06/2020
BIS Quarterly Review, March 2020
Source: The Bank for International Settlements
Thank
FO R YO UR TIM
You
E
