Consultative Group of BIS Proposes Retail Central Bank Digital Currency Architecture

The Bank for International Settlements (BIS) Consultative Group on Innovation and the Digital Economy has proposed a retail central bank digital currency (CBDC) architecture that takes a hybrid approach. In this model, the issuance and governance of the CBDC are handled by a country’s central bank, while commercial banks provide consumer-facing services.

Table of Contents

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 easily integrated or modified as needed. The token-based model will promote privacy by separating transaction from identity information. Users’ private intermediaries and entities will hold their identity information, reducing risks and ensuring greater privacy protections.

Token-Based Model for Privacy

The token-based model is designed to provide a high level of privacy for users. By separating transaction from identity information, the risk of identity theft and other forms of cybercrime is reduced. This approach also ensures that personal data remains secure and is not shared with third parties without consent.

Account-Based Models: A Different Approach

In addition to the token-based model, the CBDC architecture will also support account-based models. In this type of system, users have specific accounts tied to an entity, such as a commercial bank or other financial institution. While this approach may provide greater convenience and ease of use, it raises concerns about the potential for identity theft and data breaches.

Concerns About Systemic Risks

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. The BIS proposal has sparked a heated debate about the potential impact of CBDCs on the financial system.

Backlash Against CBDCs

The backlash against CBDCs has been widespread. In September, the Bank of Canada backed out of its CBDC development after receiving public feedback indicating that Canadians had little interest in using a central bank digital currency. Attorney John Deaton, known for representing XRP holders in the Securities and Exchange Commission lawsuit, vowed to fight against CBDCs.

A Hill to Die On

Deaton 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. He emphasized that CBDCs would give governments too much control over individuals’ financial transactions, potentially leading to a loss of freedom.

Ban on 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) instead. She argued that the digital euro was an attempt to usher in totalitarianism and encouraged the European Union to establish a Bitcoin strategic reserve.

Establishing a Bitcoin Strategic Reserve

Knafo’s proposal has sparked debate about the potential benefits of establishing a Bitcoin strategic reserve for nation-states. While some argue that this would provide a safe-haven asset, others raise concerns about the volatility of cryptocurrencies and their suitability as a store of value.

Benefits and Risks of CBDCs

CBDCs have been touted as a secure and efficient way to conduct financial transactions. However, they also raise concerns about privacy, systemic risks, and the potential for government control over individuals’ financial transactions.

Token-Based Model: A Solution or a Problem?

The token-based model is designed to provide a high level of privacy for users. By separating transaction from identity information, the risk of identity theft and other forms of cybercrime is reduced. However, some argue that this approach may not be sufficient to address concerns about systemic risks.

Account-Based Models: A Different Approach

Systemic Risks: A Growing Concern

The BIS proposal has sparked a heated debate about the potential impact of CBDCs on the financial system. Lawmakers, individuals, and even central banks have raised concerns about systemic risks, privacy, and viability.

Conclusion

The proposed retail central bank digital currency (CBDC) architecture by the BIS Consultative Group has sparked a heated debate about its potential benefits and risks. While some argue that CBDCs provide a secure and efficient way to conduct financial transactions, others raise concerns about systemic risks, privacy, and government control over individuals’ financial transactions.

References

Bank for International Settlements (BIS) Consultative Group on Innovation and the Digital Economy
The Bank of Canada
Securities and Exchange Commission lawsuit against XRP holders
Missouri bill to ban CBDCs
European Parliament member Sarah Knafo’s proposal to abandon CBDCs and adopt Bitcoin