Amid controversy surrounding the central bank digital currency (CBDC) model, the Bank for International Settlements (BIS) has proposed a new solution for the digital asset that would incorporate both a central bank and retail financial institutions.
In the BIS model, the CBDC would be issued and governed by the central bank, while retail banks would provide services to consumers. For example, banks would offer the CBDC through their existing app or digital wallet. To provide the CBDC, banks would have to undergo a certification process and maintain compliance with their central bank’s regulations.
BIS is a consortium of seven central banks that includes the Bank of England and the Federal Reserve Bank of New York. The organization was built to identify and leverage synergies among its members that can benefit global financial systems. The group recently led efforts to streamline cross-border payments systems and explore how CBDCs could coexist with tokenized commercial bank deposits on a shared platform.
Forging Ahead
The group is forging ahead with its proposal for a CBDC, despite opposition to the model. One of the main arguments against CBDCs revolves around privacy, as digital currencies could provide governments with protected transaction and user data.
Due to privacy concerns, a French lawmaker and member of the EU parliament Sarah Knafo recently decried CBDCs. Since governments still want to leverage the benefits of digital assets and crypto technologies, Knafo said a bitcoin reserve would be better solution.
Guaranteeing Privacy
The BIS group, which proposed the hybrid CBDC model, said that these privacy concerns would not factor into its solution, which will use tokens to replace personal information and keep users anonymous. The CBDC design will also support account-based models, where users have specific accounts tied to their financial institution.
The authors of the proposal noted that “privacy can be guaranteed by separating transaction from identity information, such that the latter remains with private intermediaries and users. This helps to reduce risks and ensure greater privacy protections than in other models.”
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