How to design a central bank digital currency, if you must
Choose between:
1. Direct claim on central bank or on a narrow bank (or hybrid)
2. Centralised ledger or a distributed ledger (DLT)
3. Account-based or token-based system
bis.org/publ/qtrpdf/r_…
Choose between:
1. Direct claim on central bank or on a narrow bank (or hybrid)
2. Centralised ledger or a distributed ledger (DLT)
3. Account-based or token-based system
bis.org/publ/qtrpdf/r_…
2/n
Direct claim on the central bank is closest in spirit to digital cash, but entails customer-facing role (you will need to call your central bank if your rent payment to your landlord doesn't get through)
Direct claim on the central bank is closest in spirit to digital cash, but entails customer-facing role (you will need to call your central bank if your rent payment to your landlord doesn't get through)
3/n
Indirect CBDC through a narrow bank (with 100% reserves at the central bank) farms out the customer-facing role, but then the data will need to be safeguarded
Indirect CBDC through a narrow bank (with 100% reserves at the central bank) farms out the customer-facing role, but then the data will need to be safeguarded
4/n
Hybrid system with periodic settlement on the central bank's balance sheet is yet another possibility:
Hybrid system with periodic settlement on the central bank's balance sheet is yet another possibility:
5/n
Next, consider the choice between a centralised ledger or a distributed ledger
Next, consider the choice between a centralised ledger or a distributed ledger
6/n
Distributed ledger technology (DLT) came of age with Bitcoin and similar "permissionless" systems, where there is no central authority; rather, truth is a matter of decentralised consensus
Distributed ledger technology (DLT) came of age with Bitcoin and similar "permissionless" systems, where there is no central authority; rather, truth is a matter of decentralised consensus
7/n
A central bank digital currency (CBDC) can operate either with a decentralised ledger or a centralised ledger, but the decentralised ledger will be "permissioned" type where the nodes are authorised by the central bank
A central bank digital currency (CBDC) can operate either with a decentralised ledger or a centralised ledger, but the decentralised ledger will be "permissioned" type where the nodes are authorised by the central bank
8/n
The decentralised ledger will have the virtue of robustness coming from the duplication of the ledger, but will be slow to operate - imagine having everyone agree to every transaction in the economy; this makes the DLT system unsuitable for large economies
The decentralised ledger will have the virtue of robustness coming from the duplication of the ledger, but will be slow to operate - imagine having everyone agree to every transaction in the economy; this makes the DLT system unsuitable for large economies
9/n
Finally, on the choice between account-based and token-based systems, the issues revolve around how central is the role of digital identity
Finally, on the choice between account-based and token-based systems, the issues revolve around how central is the role of digital identity
10/n
Account-based systems rely on verifying users as owners digital currency (on digital ID); token-based systems rely on public key cryptography, or having the right password.
Account-based systems rely on verifying users as owners digital currency (on digital ID); token-based systems rely on public key cryptography, or having the right password.
11/n
The paper concludes with a summary of on-going CBDC projects around the world
The paper concludes with a summary of on-going CBDC projects around the world
12/12
Above all, the issue of data looms large when designing a CBDC; how to safeguard privacy when a ledger (or ledgers) record all transactions of everyone in the economy
Above all, the issue of data looms large when designing a CBDC; how to safeguard privacy when a ledger (or ledgers) record all transactions of everyone in the economy
