【BIS and Seven Central Banks Discuss CBDC System Design: New Technologies such as Zero-Knowledge Proofs Can Provide Greater Flexibility for Achieving Privacy】On December 1, news emerged that the Bank for International Settlements (BIS) and central banks from various countries recently published a paper on legal issues and CBDC system design. The participating central banks include the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve Board, the Sveriges Riksbank, and the Swiss National Bank. One of the debates is whether the CBDC system should adopt a centralized or decentralized model. In a two-tier system, one option is to use a hub-and-spoke model, where updates are controlled by the central bank, but data ownership is decentralized. Alternatively, a peer-to-peer design can be adopted, sharing update permissions. The paper notes that centralized systems have weaker resilience, pose single points of failure, and could even become bottlenecks. However, they do not believe it is appropriate to decentralize the core settlement power of the CBDC system. In a modular design, the core settlement can be centralized, while other aspects (such as identity) can be decentralized. Furthermore, privacy is a significant issue facing CBDCs. While existing technologies can be used to achieve privacy, some newer privacy-enhancing technologies (PETs), such as secure multiparty computation (SMPC) or zero-knowledge proofs (ZKP), can provide greater flexibility. However, based on the experiences of two central banks and the BIS Innovation Hub, they are not yet convinced that PETs are ready and question their real-time execution capabilities, complexity, and reliability. Other topics discussed in the paper include cybersecurity, offline CBDCs, and compatibility with existing point-of-sale systems.

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