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Central Bank Digital Currencies - Key Considerations in Development


The main objective of this note is to identify the most relevant theoretical concepts regarding Central Banks Digital Currency scenarios and their usability in a real economic environment. From a theoretical standpoint, the concept of a CBDC needs to address important issues that were raised by Gurley and Shaw (1960, pp. 568-569), with regards to the provision of public and private money, along with the transmission of monetary policies (Tobin, 1985, pp. 19-29) and impacts on the central bank’s objectives.

Motivation, Challenges And Risks

For central banks, in many emerging market economies, a key driver for researching CBDC is the opportunity to improve financial inclusion (Boar et al., 2020, p.4). However, the potential of a CBDC system that can increase financial inclusion must address the causes of financial exclusion. These causes are complex and vary from jurisdiction to jurisdiction

Monetary Policy, Financial Stability And Risks

However, feasible solutions have been presented through a more “cash-like” model which transcends the “deposit-like” CBDC. Innovative design features and system safeguards will differ for each individual jurisdiction and the same can be said with regards to the risks, which will require significant research by the central bank to assess. A central bank should have robust means to mitigate any risks for the financial stability before any CBDC concept is issued.

Foundational Principles

Uniformity – New digital variations of money developed and supplied by a central bank should continue promoting the fulfilment of the current public policy objectives and should not obstruct with the ability to carry out the principal mandate for financial and monetary stability. A CBDC should maintain the uniformity of a sovereign currency, allowing the users to use different forms of money mutually.

Convenience – All payments involving CBDC should be simple, efficient and convenient, as easy as using cash or other means of electronic payments like: taping a card or scanning a QR code with a mobile device. This will encourage accessibility and adoption.

Low Cost – Low entry technological barriers should be provided with minimal equipment requirements. Payment involving CBDC should be very low or at no cost to end users.

Architecture Designs – Based on the Bank of International Settlements (2018) report, in a CBDC system, a payment is a transfer of a central bank liability, recorded on a ledger. In designing a CBDC ledger, there are five key factors: Structure, Payment authentication, Functionality, Access and Governance.

Proof Of Concepts – Digital Currency Electronic Payment (DCEP) is China’s CBDC project. Discussions within the financial sphere have concluded with the long-term vision of DCEP as an internal system of settlements which has as main goal the replacement of the Society for Worldwide Interbank Financial Telecommunication (SWIFT) operations.

CBDC’s Effects On Commercial Banks, Monetary Policy And Financial Stability

A reaction to such a potential substitute will come from the banking side with a change of the deposit rates that affects the bank’s main funding cost. Fundamentally, the quantity of the bank deposits, along with the bank-intermediated lending may change. As a result, the introduction of a CBDC concept may replace the banks’ main source of funding and cause disintermediation of commercial banks, which in turn may lead to a decrease in their lending structures.


Traditional currencies of the current financial system are operating in a highly regulated environment by the authorities, thus a concept as a CBDC needs to be included in the scope of the legal regulation as a new form of digital currency. Therefore, there may be legal loopholes in the issuance, usage, circulation and supervision of such a concept. Difficult and complex security scenarios need to be vetted as we move into a digital era where it can become cumbersome to analyze swaps between digital financial assets or where new financial instruments can be constructed having the foundationof digital currencies.