BIS Working Paper Examines Architecture and Rationale of CBDC Technology

The Bank for International Settlements released a working paper this week to discuss the range of central bank digital currencies, including addressing their architectures, how they could complement existing payment options and what they imply for the financial system and central banks in the future. According to BIS, almost 50 central banks have launched designs or prototypes for CBDCs.

The paper advocates for and outlines requirements for a “minimally invasive” CBDC design that, according to its authors, “upgrades money to current needs without disrupting the proven two-tier architecture of the monetary system, which involves both the private and public sectors.” The technological developments inspired by popular cryptocurrency systems (based on anonymity and lacking a central authority) do not meet the requirements for a retail CBDC, according to BIS. Digital banknotes that run on “intermediated” or “hybrid” CBDC architectures “show promise,” the paper claims. “Supported with technology to facilitate record keeping by private-sector entities of direct claims on the central bank, their economic design should emphasize the use of the CBDC as medium of exchange,” the paper’s authors note. The paper also acknowledges the risk to bank deposits, noting that “it will need to limit its appeal as a savings vehicle.”