Revealing The Key Challenges In rCBDC Design And Adoption
Top central banks provide a good summary of the surmountable challenges ahead.
The BIS and seven central banks look at system design and legal issues surrounding retail CBDC and produce a great summary of the current CBDC thought.
The central banks (cbanks)participating included the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Board of Governors of the Federal Reserve System, Sveriges Riksbank, and the Swiss National Bank.
The group is noteworthy for including pro-CBDC cbanks like the ECB and Riksbank and anti-CBDC cbanks like the US Fed and, sadly, Canada.
This matters since anyone expecting an overtly pro-CBDC document will be disappointed.
Sadly, the input of China and India, nations openly running CBDC trials and having experience running fast payment systems, were not solicited in what can only be seen as a politically motivated oversight.
The product of their study is two separate documents, and I’ve selected a group of key points from both.
👉TAKEAWAYS
🔹 In a two-tier CBDC system, centralized versus decentralized options may not have to be two mutually exclusive and incompatible design choices.
🔹 Privacy may be a key consideration for central banks when designing a CBDC system and involves navigating numerous trade-offs. Privacy enhancing techniques (PETs) may provide both opportunities and challenges within a retail CBDC system. Trade-offs should be examined when considering PETs versus more traditional methods to deliver privacy.
🔹 PET may allow the extraction of information from encrypted data without revealing personal information and would add an extra layer of protection and design flexibility. However, experimental work conducted by some of the central banks contributing to this report suggests that some of these PETs may not yet be feasible to use in real-time.
🔹 🔥Privacy is a multi-dimensional issue encompassing evolving law, politics, public sentiment, institutional arrangements, and technology. The approach to ensuring privacy would likely require a combination of system design (“privacy by design”) and regulation (“privacy by policy”).🔥
🔹 Most security risks are not unique to CBDC. However, traditional risks may be amplified for CBDC because there may be greater incentives for malicious actors to attack the system.
🔹 Quantum computers of the future may have the potential to challenge the integrity of the current (‘classical’) cryptography methods, albeit over an uncertain period.
🔹 The legal frameworks governing money, payments and central banking were not drafted with digital central bank money for the public in mind. Jurisdictions may need to consider creating a new legal object/asset for rCBDC with a bespoke monetary and private law framework.
🔹 The legal framework will likely need to draw an appropriate balance between the need to protect the privacy of users, and the need to guard against the criminal misuse of the financial system
🔹 Policy makers may need to decide whether to allow for access to their rCBDC system by non-resident/non-domiciled end-users or intermediaries.
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