The Bank for International Settlements (BIS) Consultative Group on Innovation and the Digital Economy has proposed a retail central bank digital currency (CBDC) architecture based on a hybrid approach. This approach involves the issuance and governance of the CBDC being handled by a country’s central bank, while commercial banks provide consumer-facing services.
A Modular Approach to Design
According to the BIS, the proposed CBDC framework takes a modular approach to design. This means that different components can be developed independently and combined in various ways to create different systems. The modular design allows for greater flexibility and adaptability, making it easier to update or modify individual components without affecting the entire system.
Token-Based Model: Promoting Privacy
The proposed CBDC framework focuses on a token-based model to promote privacy. In this approach, transactions are represented by tokens, which can be transferred between users without revealing their identities. The use of tokens allows for greater anonymity and reduces the risk of identity theft or unauthorized access.
However, the CBDC architecture will also support account-based models where users have specific accounts tied to an entity. This approach provides a higher level of security and accountability but may compromise user anonymity.
Guaranteeing Privacy: Separating Transaction from Identity Information
The authors of the proposal suggest that privacy can be guaranteed by separating transaction from identity information. This means that the latter remains with private intermediaries and users, reducing risks and ensuring greater privacy protections than in other models.
Systemic Risks, Privacy Concerns, and Viability: A Growing Backlash Against CBDCs
Despite promises of privacy, CBDCs are widely seen as the antithesis of permissionless finance. Lawmakers, individuals, and even central banks have raised concerns about systemic risks, privacy, and viability.
A Glimpse into the Proposed CBDC Architecture Model
The BIS has provided a proposed CBDC architecture model that highlights the key components and relationships between them. The model includes:
- Central Bank: Issues and governs the CBDC
- Commercial Banks: Provides consumer-facing services
- Private Intermediaries: Holds user identities and transaction information
- Users: Hold tokens or accounts tied to an entity
CBDCs Face Widespread Backlash
In recent months, there has been growing opposition to CBDCs. Here are some examples:
Bank of Canada Abandons CBDC Development
In September, the Bank of Canada backtracked its CBDC development after receiving public feedback indicating that Canadians had little interest in using a central bank digital currency.
Attorney John Deaton Vows to Fight Against CBDCs
The lawyer called the campaign against CBDCs "a hill to die on" and said the dangers of a centrally managed digital ledger to individual liberty were a major cause of concern.
Bill Introduced to Ban CBDCs in Missouri
A bill introduced by Missouri lawmaker Rick Brattin on Dec. 1 seeks to ban CBDCs in the state. Provisions in the bill would prohibit businesses from accepting CBDCs for payment and prevent any CBDC research or development.
European Parliament Member Calls for Abandonment of CBDCs
European Parliament member Sarah Knafo recently called on the European Union to abandon CBDCs and adopt Bitcoin (BTC). The MP said the digital euro was an attempt to usher in totalitarianism and encouraged the European Union to establish a Bitcoin strategic reserve as other nation-states continue accruing the digital currency.
Conclusion
The proposed retail central bank digital currency (CBDC) architecture takes a hybrid approach, where issuance and governance of the CBDC are handled by a country’s central bank while commercial banks provide consumer-facing services. While the token-based model promotes privacy, concerns about systemic risks, privacy, and viability remain. The growing backlash against CBDCs highlights the need for further discussion and debate on the future of digital currencies.
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