The Bank for International Settlements (BIS) has recently introduced a groundbreaking framework for the development of retail central bank digital currencies (CBDCs), focusing on a hybrid model that combines central bank oversight with private sector collaboration. This new approach, outlined by the Consultative Group on Innovation and the Digital Economy (CGIDE), serves as a roadmap for central banks in the Americas and beyond as they navigate the complexities of implementing CBDCs.
The hybrid model proposed in the report strikes a balance between central bank control and private sector involvement. Central banks would maintain authority over the issuance of CBDCs and the underlying infrastructure, while private intermediaries would handle user-facing functions such as KYC verification, wallet management, and transaction facilitation. This collaborative model aims to ensure efficiency, scalability, and compliance with regulatory requirements, all while safeguarding user privacy.
The framework includes four key processes: user enrollment, CBDC issuance, CBDC withdrawal, and intra-ledger transfers. One notable feature is the support for tiered KYC mechanisms, which would provide basic wallets for low-value transactions with minimal identity verification and advanced wallets for higher-value transactions subject to stricter regulatory standards. Additionally, the inclusion of offline payment capabilities aims to enhance financial inclusion by extending access to underserved and unbanked populations.
The report also emphasizes the potential for CBDCs to offer advanced functionalities such as programmability through smart contracts, asset tokenization, and integration with decentralized finance (DeFi) platforms. These features have the potential to enhance liquidity, streamline transactions, and enable new financial arrangements, positioning CBDCs as essential tools for modern economies. For instance, tokenized CBDCs could simplify financial settlements by enabling atomic transactions and facilitate cross-border payments, reducing costs and processing times.
In addition to outlining the benefits of programmable and tokenized assets, the report addresses technical challenges such as interoperability with existing payment systems, ensuring privacy while complying with regulations, and safeguarding against cyber threats. The BIS underscores that the proposed framework is flexible and encourages dialogue and feedback from stakeholders to refine and improve the implementation of CBDCs.
Overall, the BIS’s comprehensive framework for retail CBDCs represents a significant step towards the evolution of digital currencies in the global financial landscape. By embracing a hybrid model that combines central bank oversight with private sector innovation, central banks can unlock the full potential of CBDCs and drive economic growth and financial inclusion.