A global perspective on central bank digital currency

Abstract

This paper discusses the key considerations of CBDC design to balance benefits and risks and presents best practices in CBDC design from a global perspective. Using China's CBDC as an illustration, this paper discusses two-tier or multi-tier ledger design and proposes ten enablers of mass adoption and successful implementation. This proposed design allows central banks to manage the process flow, focus on the monitoring and control, without bearing all the load or exposing to over-centralized risks. It concludes that CBDC will be the primary tool in the future digital economy, and countries that are conversant with the technology will have a competitive advantage. Learning from the implementation, continuously reviewing the existing regulation, and improvising whenever international dynamics change the landscape are vital attributes of a successful implementation.

Cryptocurrencies and CBDC: The Route Ahead

“…But the roadmap to CBDC execution is expected to be a long drawn-out one. Governments would need to consider all the socioeconomic, technological and regulatory aspects of such a move before an issuance can take place for the fear of generating an unwanted financial disruption and social backlash (Lee et al 2021). While it is still uncertain which architecture central banks would eventually adopt for introduction of CBDCs, we believe central banks should not attempt to overtake the financial intermediation function from the private sector intermediaries in either case.…”

Central Bank Digital Currency Can Lead to the Collapse of Cryptocurrency

“…They will determine whether the central bank digital currency should be based on distributed ledger technology or the traditional central bank infrastructure. Lee et al (2021) also show that countries that are conversant with the distributed ledger technology will have a competitive advantage in developing a central bank digital currency. They show that, after implementing the central bank digital currency, there will be a need to continuously review existing regulations to support central bank digital currency, and there may be a need to modify central bank digital currency whenever international dynamics change the central bank digital currency landscape.…”

“…They show that central bank digital currency is a central bank liability incorporated in a digital token and transferred to users. Lee et al (2021) show that central banks that are adopting central bank digital currencies will have to choose the choice of the ledger. They will determine whether the central bank digital currency should be based on distributed ledger technology or the traditional central bank infrastructure.…”

China’s Transition to a Digital Currency: Does It Threaten Dollarization?

“…"One CBDC" refers to the DCEP issued by the Chinese government. The "two databases" refer to the two-tiered system in which the DCEP operates (Lee, Yan, & Wang, 2021), such that the central bank does not issue digital currency to the public directly. Rather, it issues the currency first to smaller commercial banks, which then issue it to its customers.…”