Private Law Aspects of Token-Based Central Bank Digital Currencies (IMF)
The IMF published a paper that presents a practical legal-analytical framework to assess how private law rules can be designed to support the wide circulation and safe holding of token-based central bank digital currency (CBDC) primarily intended for retail use. It follows a previous IMF working paper that examined the legal foundations of CBDC under central bank law and its treatment under monetary law—the main public law aspects of CBDC. A private law framework is also needed, because unlike account-based CBDC, token-based CBDC constitutes from the legal perspective a new form of money and hence raises a lot of challenges under private law. This legal nature will shape how token-based CBDC can be transferred, held in custody, “deposited” with commercial banks, and pledged. It is also be crucial that private law rules establish with certainty how ownership and other rights in token-based CBDC can be transferred between economic agents. In most jurisdictions, the private law regime for token-based CBDC will likely need to be augmented by a comprehensive legislative intervention to provide a sufficiently robust and predictable legal foundation for this new digital currency. In designing such a legislative framework, countries will need to consider carefully whether to anchor it in a broader framework for digital money or assets. [Read more at the IMF]
The paper defines “token-based” CBDC as “(a) a form of money; (b) issued by a central bank and thus expressed in the official monetary unit; (c) where the monetary claim on the central bank is incorporated in a digital token (in its various possible technological forms); and (d) the transfer of the token equates to the transfer of the claim, (e) without a current-account relationship between the central bank and the holder. In principle, this does not preclude that technologically there are instructions to, and actions by, the issuing central bank (or even an intermediary), for instance in the context of a permissioned ledger. But legally, the token-based CBDC would be transferred between holders without legal intervention (for example, in the form of a debit instruction) of the central bank.”
“Complicating matters is the fact that a token-based CBDC could be held “indirectly” through wallets whereby holders own and transfer their CBDC through financial intermediaries but still retain a direct monetary claim on the central bank. This means that understanding the triangular relationship between the central bank, wallet provider and a CBDC holder will be central to comprehending the full legal ramifications, including risks, of the holding structure of token-based CBDC. In this respect, an important issue will be to ensure that the holder maintains at all times a direct claim on
the central bank.”
“An “account-based” CBDC would be a form of money whose value is recorded in the form of digital representations of credit balances on current accounts held in a central bank’s books. (1) Those credit balances can basically be constituted in three ways: (i) “deposits” of banknotes and coins; (ii) transfers from other current accounts, and (iii) crediting by the central bank. Transfers between current accounts are effected through debits and credits of these accounts. In other words, account-based CBDC would deploy conventional banking techniques. Current accounts represent a contractual legal relationship between the central bank and the account holder. By consequence, the rights and obligations of the parties are mainly provided by the contractual terms and conditions., and the legal parameters of currents accounts are well developed and understood.”
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