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While no decision has been made to pursue the issuance of a central bank digital currency (CBDC), this paper explores the technological approach to constructing a CBDC system for contingency planning purposes. Any design needs to be determined by policy choices about the attributes of the CBDC (e.g., privacy, resilience); the business model (considering, e.g., partners, end-user channels and the cost model); and the qualities the system supports (e.g., user experience, security). This note explores these options and describes the potential limits that the underlying technology may impose on the mix of policy objectives.
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Wide adoption of a digital currency denominated in a different unit of account, such as Libra, presents a significant threat to monetary sovereignty and financial stability. Issuing a CBDC could potentially counter this threat. Making central bank money more user-friendly would increase its attractiveness as a means of payment in general and as an alternative to Libra in particular.
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Regulatory sandboxes, modeled after what Kenyan regulators effectively did in the early stages of M-PESA, would provide an excellent opportunity for regulators to experiment with removing barriers to entry to nontraditional financial service providers and relaxed KYC-AML laws. It’s difficult to predict with any confidence what innovations will emerge in this environment and achieve the most success. But if Africa’s incredible success with mobile money is any indicator, the benefits of this enabling approach make it well worth the try.
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The Kiffmeister is a former Senior Financial Sector Expert at the International Monetary Fund.
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