Central bank digital currency: the quest for minimally invasive technology*
Central bank digital currency (CBDC) should allow central banks to provide a universal means of payment for the digital era, while at the same time upholding consumer privacy and the private sector’s primary role in the retail payment system and financial intermediation. We set out the economic and operational requirements for a “minimally invasive” design of CBDC and discuss the implications for the underlying technology. Developments inspired by popular cryptocurrency systems do not meet these requirements. Instead, cash is the model. 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, show promise. The economic design should emphasize the use of the CBDC as medium of exchange and could limit its use as store of value. Underlying, a novel trade-off for central banks emerges: they can either operate complex technical infrastructures or complex supervisory regimes. There are many ways to proceed, but all require the central bank to develop substantial technological expertise.
*based on joint work with Raphael Auer