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Design Choices for Central Bank Digital Currency: Policy and Technical Considerations

Author

Listed:
  • Allen, Sarah

    (Initiative for CryptoCurrencies and Contracts (IC3))

  • Capkun, Srdjan

    (Initiative for CryptoCurrencies and Contracts (IC3))

  • Eyal, Ittay

    (Initiative for CryptoCurrencies and Contracts (IC3))

  • Fanti, Giulia

    (Initiative for CryptoCurrencies and Contracts (IC3))

  • Ford, Bryan

    (Initiative for CryptoCurrencies and Contracts (IC3))

  • Grimmelmann, James

    (Initiative for CryptoCurrencies and Contracts (IC3))

  • Juels, Ari

    (Initiative for CryptoCurrencies and Contracts (IC3))

  • Kostiainen, Kari

    (Initiative for CryptoCurrencies and Contracts (IC3))

  • Meiklejohn, Sarah

    (Initiative for CryptoCurrencies and Contracts (IC3))

  • Miller, Andrew

    (Initiative for CryptoCurrencies and Contracts (IC3))

  • Prasad, Eswar

    (Cornell University)

  • Wüst, Karl

    (Initiative for CryptoCurrencies and Contracts (IC3))

  • Zhang, Fan

    (affiliation not available)

Abstract
Central banks around the world are exploring and in some cases even piloting Central Bank Digital Currencies (CBDCs). CBDCs promise to realize a broad range of new capabilities, including direct government disbursements to citizens, frictionless consumer payment and money-transfer systems, and a range of new financial instruments and monetary policy levers. CBDCs also give rise, however, to a host of challenging technical goals and design questions that are qualitatively and quantitatively different from those in existing government and consumer payment systems. A well-functioning CBDC will require an extremely resilient, secure, and performant new infrastructure, with the ability to onboard, authenticate, and support users on a massive scale. It will necessitate an architecture simple enough to support modular design and rigorous security analysis, but flexible enough to accommodate current and future functional requirements and use cases. A CBDC will also in some way need to address an innate tension between privacy and transparency, protecting user data from abuse while selectively permitting data mining for end-user services, policymakers, and law enforcement investigations and interventions. In this paper, we enumerate the fundamental technical design challenges facing CBDC designers, with a particular focus on performance, privacy, and security. Through a survey of relevant academic and industry research and deployed systems, we discuss the state of the art in technologies that can address the challenges involved in successful CBDC deployment. We also present a vision of the rich range of functionalities and use cases that a well-designed CBDC platform could ultimately offer users.

Suggested Citation

  • Allen, Sarah & Capkun, Srdjan & Eyal, Ittay & Fanti, Giulia & Ford, Bryan & Grimmelmann, James & Juels, Ari & Kostiainen, Kari & Meiklejohn, Sarah & Miller, Andrew & Prasad, Eswar & Wüst, Karl & Zhang, 2020. "Design Choices for Central Bank Digital Currency: Policy and Technical Considerations," IZA Discussion Papers 13535, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp13535
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    References listed on IDEAS

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    More about this item

    Keywords

    new financial technologies; digital money; cryptocurrencies; payment systems;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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