According to Odaily, the Bank for International Settlements (BIS) and several central banks have recently published a paper addressing legal issues and the design of Central Bank Digital Currency (CBDC) systems. 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 Swedish Riksbank, and the Swiss National Bank.
One of the key debates highlighted in the paper is whether CBDC systems should adopt a centralized or decentralized model. In a two-tier system, one option is the hub-and-spoke model, where updates are controlled by the central bank, but data ownership is decentralized. Alternatively, a peer-to-peer design could be implemented, allowing shared update permissions. The paper notes that centralized systems tend to have weaker resilience due to single points of failure, which could become bottlenecks. However, the authors do not consider it appropriate to decentralize the core settlement authority of CBDC systems. In a modular design, core settlement can remain centralized, while other aspects, such as identity, can be decentralized.
Privacy is another significant issue facing CBDCs. While existing technologies can achieve privacy, newer privacy-enhancing technologies (PETs), such as Secure Multi-Party Computation (SMPC) or Zero-Knowledge Proofs (ZKP), offer greater flexibility. However, based on the experiences of two central banks and the BIS Innovation Hub, there is skepticism about whether PETs are ready for real-time execution, given concerns about their complexity and reliability.
The paper also explores other topics, including cybersecurity, offline CBDC functionality, and compatibility with existing point-of-sale systems. These discussions are crucial as central banks worldwide continue to explore the potential implementation of CBDCs, balancing innovation with security and privacy considerations.