How to issue a central bank digital currency

Revisiting the Properties of Money

“…Auer and Böhme (68) and Allen et al (57) argue that there is a fundamental tradeoff in CBDC design between untraceability and anti money laundering compliance. Chaum et al (20) propose a CBDC scheme that would allow for anonymity while still using the central bank as a trusted third party. Agur et al (16) argue that CBDCs that focus on anonymity as a core property will tend to be substitutes for cash, rather than bank deposits.…”

“…In this subsection, we will discuss the properties of money that relate to its ability to function as a unit of account. 20 In digital settings, prices could be presented according to the unit preferred by the user, and exchanging can be done automatically on the merchant's side. In digital forms of money, switching costs may be sufficiently low that they are not an important consideration in determining which currency to hold.…”

“…Fiat currencies maintained by independent, inflation-targeting central banks have largely achieved price stability since the 1990s (95). 20 For a modern treatment of the unit of account function of money, see (88)(89)(90).…”

“…This gave rise to demand for cryptocurrencies with low price volatility, referred to as "stablecoins" (97). Stablecoins rely on one of two mechanism to achieve parity with a target currency: 1) an algorithmic supply rule or 2) a guarantee of convertibility into some asset (20,98). Thus far, asset-backed stablecoins, such as Tether, have demonstrated a greater capacity for achieving price stability (20,99).…”

“…The continued relevance of public money in the 21st century may depend on how well central banks 1 See Hull et al (8) for an overview of progress in the theoretical and experimental development of quantum money. navigate these trade-offs (12,(18)(19)(20). In the previous round of currency competition, cash declined in use relative to private bank deposits (9,15), suggesting that central banks were either incapable or uninterested in retaining control over the medium of exchange.…”