Design choices for central bank digital currency

This article provides a summary of a recent Brookings working paper on considerations for central bank digital currency (CBDC) design. Much like the recent IMF working paper that covers similar territory, it finds that the benefits and risks of CBDC are complex, encompassing financial, legal, and technical considerations and the interplay among them. And each country will have to take into account its specific circumstances and initial conditions before deciding whether the potential benefits of introducing a CBDC outweigh the possible costs. It concludes that a two-layer infrastructure with central bank management of the digital ledger and existing financial institutions providing customer service is a likely choice, because it would maintain existing financial sector business models and avoid disintermediation of the financial system.  

What will China’s central bank digital currency mean for Alipay and WeChat Pay?

China’s digital currency will have two tiers, comprising the first level distributed by the central bank to commercial banks, and a second layer used by retail customers. The first-level design of the CBDC has been “basically completed” along with the formulation of technical standards and interoperability tests. The e-yuan will next be distributed to payment service providers and other private sector institutions, the central bank said in a July report published by the International Monetary Fund (IMF). To avoid such upsets, the Peoples Bank of China (PBOC) told the IMF that it is likely to limit e-yuan to small, retail transactions by setting maximum daily and yearly limits on payments and that it will only process large amounts by appointment. The PBOC said it may apply fees for large-sum or high-frequency transactions. It will also offer no interest on accounts. 

Posted from Diigo: https://www.diigo.com/user/kiffmeister/Fintech