Source: cryptoslate
Compiled by: Blockchain Knight
The Bank for International Settlements (BIS) has published a comprehensive framework for designing retail central bank digital currencies (CBDCs), emphasizing a hybrid model that combines central bank control with private sector collaboration.
The report, produced by the Consultative Group on Innovation and the Digital Economy (CGIDE), provides a roadmap for central banks in the Americas and around the world to explore this evolving financial instrument.
The hybrid model proposed in the report enables the central bank to retain management of CBDC issuance and infrastructure while delegating user-facing responsibilities to private intermediaries.
These intermediaries will handle functions such as KYC verification, wallet management, and transaction facilitation.
This model ensures efficiency and scalability while addressing user privacy and compliance-related issues.
The architecture includes four core processes: user registration, CBDC issuance (cash credit), CBDC withdrawal (cash debit), and internal ledger transfers.
Notably, the system supports a tiered KYC mechanism, providing basic wallets for low-value transactions with minimal identity requirements and advanced wallets for high-value transactions that meet stricter regulatory standards.
Offline payment functionality is an important feature of this proposal, aimed at expanding the reach to underserved and unbanked populations.
The report states, "The hybrid model bridges the gap between centralization and decentralization, providing resilience, accessibility, and stronger privacy protection."
The report from the Bank for International Settlements highlights the advanced features that CBDCs can bring to the financial ecosystem, including programmability through smart contracts, asset tokenization, and seamless integration with DeFi.
The report states that these features can enhance liquidity, automate transactions, and create new financial arrangements, positioning CBDCs as foundational tools for the modern economy.
For example, tokenized CBDCs can simplify financial settlements through atomic transactions, eliminating the need for multi-step reconciliation processes. They can also facilitate cross-border payments, reducing costs and processing times, while promoting greater competition and efficiency.
The report emphasizes that a programmable CBDC platform can transform supply chain financing and support innovations such as emergency payments.
The report draws on global experiences, mentioning Jamaica's JAM-DEX, China's digital RMB, and Peru's offline pilot projects targeting rural areas.
It also addresses technical challenges, including interoperability with existing payment systems, ensuring privacy without compromising compliance, and mitigating cyber threats.
The Bank for International Settlements emphasizes that this proposal is a flexible framework designed to facilitate dialogue and feedback among stakeholders.