Working Paper: NBER ID: w27634
Authors: Sarah Allen; Srjan Apkun; Ittay Eyal; Giulia Fanti; Bryan A. Ford; James Grimmelmann; Ari Juels; Kari Kostiainen; Sarah Meiklejohn; Andrew Miller; Eswar Prasad; Karl Wüst; Fan Zhang
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. \nCBDCs 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 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. \nIn 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.
Keywords: Central Bank Digital Currency; CBDC; Payment Systems; Monetary Policy; Financial Inclusion
JEL Codes: E42; E52; E58; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| CBDCs (E58) | reduce friction in existing payment systems (E42) |
| CBDCs (E58) | transaction efficiency and speed (G14) |
| CBDCs (E58) | broaden the tax base (H29) |
| traceability of digital transactions (E42) | reduction of illicit financial activities (F38) |
| CBDCs (E58) | flexible monetary policy (E63) |
| CBDCs (E58) | stability of financial systems (P34) |
| CBDCs (E58) | disintermediation of the banking system (G21) |