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Central bank digital currency the quest for minimally invasive technology

Central bank digital currency (CBDCs) should let central banks provide a universal means of payment for the digital era. At the same time, such currencies must safeguard consumer privacy and maintain the two-tier financial system. Almost 50 central banks have already launched designs for CBDCs or prototypes.

 

The paper discusses the economic and operational requirements for a “minimally invasive” design – one that preserves the private sector’s primary role in retail payments and financial intermediation – for CBDCs and discuss the implications for the underlying technology. Developments inspired by popular cryptocurrency systems do not meet these requirements. Instead, cash is the model for CBDC design. Showing particular promise are digital banknotes that run on “intermediated” or “hybrid” CBDC architectures, supported with technology to facilitate record-keeping of direct claims on the central bank by private sector entities.

Categories: Recommended Readings
Author: BIS