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Bank for International Settlements (BIS) proposes hybrid and intermediary CBDC


Requirements for CBDC

The Bank for International Settlements (BIS) has released a new research report entitled “the quest for minimally invasive technology” of the promising CBDC (Central Bank Digital Currency). Discussed design requirements.

The CBDC aims to provide a “universal payment method in the digital age,” but at the same time it needs to maintain consumer privacy protection and the fundamental role that the private sector plays in retail payments and financial intermediation. BIS claims.

To that end, he said, it is essential to “upgrade currencies to meet current needs” without breaking the two-tiered structure of the current financial system in which the private and public sectors are jointly involved.

Retail type is modeled on cash

BIS concluded that the design based on the decentralized model of crypto assets (cryptocurrencies) does not meet the requirements of retail CBDC “because it is based on anonymity and there is no central authority”.

On the other hand, the role that cash plays in today’s society will serve as a reference for the economic and operational requirements of retail CBDCs.

Cash, which is a “legal claim against a central bank,” is useful for payments, but as a means of storing value, it is lost, stolen, does not generate interest, and the cost of storing large amounts of cash in the long term. Considering it, he pointed out that it is limited. Therefore, bank deposits, which are “legal claims against commercial banks,” are an attractive alternative.

However, when retail CBDC (legal claim to the central bank) is realized, there is a concern that recognition as a means of storing effective value will increase significantly. If consumers convert most of their bank deposits to CBDC, a large amount of money will flow into the central bank and the need for fund management will arise, deviating from its original purpose and “playing a role as an investor.” I will be responsible, “BIS is concerned.

BIS seems to decide that it is best to leave the personalized customer service and continuous innovation of the service sector to the private sector. The reasons are that the private sector’s loan and investment decisions rooted in each region are superior to the public sector, and that the free market, where the principle of competition works, is more suitable for efficient service provision. I gave.

As a result, the design of the CBDC, which enables commercial banks to “maintain their role as intermediaries between savers and investors,” is economically important.

Mediated type and hybrid type

CBDC’s design is for “intermediary” or “hybrid” banknotes in which private companies with direct claims to the central bank are supported by technology that facilitates record keeping of legal claims. The BIS claims it is promising.

In that case, the use of the CBDC as a medium of exchange should be emphasized, but the “attractiveness as a means of savings” needs to be limited.

In the hybrid design, the central bank does not operate retail payments, but retains a “backup copy” of the balance. This allows the central bank to resume payments if the intermediary becomes insolvent or faces technical problems.

On the other hand, it was pointed out that some central banks hesitate to retain all retail payment data in terms of privacy and data security. In that case, BIS suggests that the central bank could consider designing a “mediated” CBDC that records only wholesale balances.

The downside of the intermediary type is that it requires close scrutiny to ensure that the total holdings of all retail accounts and the holdings of wholesale are always consistent.

In each case, BIS concludes that central banks are more “financially resilient” than retailers, which offer direct payments to consumers, because they can focus on “limited core responsibilities.” ing.

Central banks have several options for designing CBDC, but they need to “operate complex technical infrastructure” or “strengthen complex supervisory systems”. Therefore, it seems certain that a high level of technical expertise will be essential for the operation of central banks in the future.

Discuss the need for international cooperation

In April, BIS General Manager Agustín Carstens spoke on the benefits of the CBDC and the need for international cooperation over the CBDC.

Among them, Mr. Carstens pointed out two possible forms of CBDC, “accounts held by central banks” and “tokens”, and further retail type (distributed directly to individuals) and wholesale type, respectively. It was said that it could be divided into (those mediated by commercial banks).

He also emphasized the need for an international cooperation system to build the CBDC. “The central bank’s commitment to CBDC is a global collaboration,” he said.

In particular, when applying the CBDC issued by each country to international payments, the problems of today’s correspondent banking system, such as differences in payment system business hours, differences in communication standards, and lack of transparency in exchange rates and fees, have been improved. Can be done.

Relation:Bank for International Settlements advocates the need for international cooperation over digital currency (CBDC)


Author: Naoko Kouda
Reference: Bank for International Settlements

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“Cryptocurrency” means “cryptographic assets”

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