China takes the lead in the CBDC space
Many central banks in several other countries have also been studying digital currencies, but none have taken the lead to actually develop and rollout a CBDC at the scale occurring in China. The “Digital Currency Electronic Payments” (DCEP) is itself a stablecoin, but one backed 1:1 by the PBoC with fiat Chinese yuan/renminbi. Its system follows a “two layer” approach.
- First, and critically, because it is a sovereign digital currency, the PBoC is the only issuing party;
- Second, to expeditiously diffuse the currency, the central bank issues DCEP to select retail banks and non-financial institutions (e.g., Alibaba, Tencent, and Union Pay) in China with strong pre-existing mobile payment networks, who then merely distribute the currency to the general public. Businesses across China will be required by law to accept DCEP as payment.
China’s central bank has taken the lead in digital currencies. What does it mean for businesses?
By: Jemma Xu, Dan Prud’homme – RedBlock Capital, EMLV Business School
Meantime in the US
To enhance the Federal Reserve’s understanding of digital currencies, the Federal Reserve Bank of Boston is collaborating with researchers at the Massachusetts Institute of Technology in a multiyear effort to build and test a hypothetical digital currency oriented to central bank uses. The research project will explore the use of existing and new technologies as needed. Lessons from this collaboration will be published, and any codebase that is developed through this effort will be offered as open-source software for anyone to use for experimentation.
An Update on Digital Currencies
By: Lael Brainard – Federal Reserve Board
Token or account-based?
Thought has been spent in the distinction between account-based and token-based CBDC in an effort to highlight a defining feature of certain new, emerging forms of digital currency. But Bitcoin, note Garratt and al. is both, rending thus the effort to differentiate between the two classification rather obsolete. They argue that focusing on this distinction may slow down progress in understanding intrinsic differences between the growing set of digital payment options and technologies.
Token- or Account-Based? A Digital Currency Can Be Both
By: Rod Garratt, Michael Lee, Brendan Malone, Antoine Martin – Federal Reserve of New York
The state of research on CBDC
This paper presents a comprehensive analysis of the fundamental technical design challenges facing CBDC designers, with a particular focus on performance, privacy, and security. The authors use a survey of relevant academic and industry research and deployed systems, to discuss the state of the art in technologies that can address the challenges involved in successful CBDC deployment. Finally, they present a vision of the rich range of functionalities and use cases that a well-designed CBDC platform could ultimately offer users.
Design choices for Central Bank Digital Currency Policy and technical considerations
Authors: Sarah Allen, Srdjan Capkun, Ittay Eyal, Giulia Fanti, Bryan Ford, James Grimmelmann, Ari Juels, Kari Kostiainen, Sarah Meiklejohn, Andrew Miller, Eswar Prasad, Karl Wüst, and Fan Zhang
From: Brookings
