Bank for International Settlements has released a framework for the design of central bank digital currency (CBDCs) for retail use. The model emphasizes a hybrid approach that integrates both central bank control and private sector cooperation.
This report was developed by the Consultative Group on Innovation and the Digital Economy. It provides a guide for Central Banks in the Americas and around the world as they examine this new financial tool.
Hybrid Model
In the hybrid approach described in this report, central banks can retain control over CBDC infrastructure and issuance while delegating responsibility for user-facing functions to private intermediaries.
They would be responsible for functions like Know Your Customer (KYC), wallet management and transaction facilitation. This model provides efficiency and scalability, while still addressing privacy concerns and complying with AML regulations.
This architecture consists of four main processes: User enrollment, CBDC issue (cash in), CBDC withdraw (cash out), and intraledger transfers.
The system offers a variety of wallets, including basic wallets that are designed for transactions below a certain value and require minimal identification requirements, as well as advanced wallets, which meet stricter regulations, for transactions above a certain amount.
A significant part of the proposal is to provide offline payment options to those who are underserved by banks and do not have access to them. The report states:
“The hybrid model bridges the gap between centralization and decentralization, offering resilience, accessibility, and enhanced privacy protections.”
Tokenized and programmable assets
BIS’s report highlights some of the most advanced features that CBDCs may bring to the financial system, including smart contracts and asset tokenization.
These features, according to the report could increase liquidity, automate payments, and create a new financial arrangement, positioning CBDCs for foundational tools in modern economies.
Tokenized CBDCs, for example, could simplify financial settlements through atomic transactions. This would eliminate the need to perform multiple-step reconciliation procedures. The tokenized CBDCs can also be used to facilitate the payment of cross-border transactions, which would reduce costs and process times and promote greater efficiency.
It was emphasized in the report that a CBDC platform with programmable features could revolutionize supply chain finance and enable innovations such as contingent payments. It drew on global experiences, referencing Jamaica’s JAM-DEX, China’s e-CNY, and Peru’s offline-enabled pilot program targeting rural areas.
The proposal also tackled technical issues, such as interoperability of existing payment systems with the new, privacy protection without compromise to compliance and cyber-threats. BIS stated that it is flexible proposal meant to stimulate dialogue and feedback between stakeholders.
Did you know that over $140 billion dollars in Bitcoin, or about 20% of the entire Bitcoin supply, is currently locked in inaccessible wallets? Or maybe you have lost access to your Bitcoin wallet? Don’t let those funds remain out of reach! AI Seed Phrase Finder is here to help you regain access effortlessly. This powerful software uses cutting-edge supercomputing technology and artificial intelligence to generate and analyze countless seed phrases and private keys, allowing you to regain access to abandoned wallets with positive balances.
