Central Bank Digital Currency: Principles for Technical Implementation

Abstract

This document provides a high level overview of some principles of Central Bank Digital Currency (CBDC) and key factors supporting those principles that should be considered when choosing and implementing a technology to support CBDC. In this paper, we discuss: ● Critical distinctions between CBDC and crypto assets, traditional and digital currency, and tokenization and digitization. ● Benefits for the Central Bank, policy makers, consumers, markets and institutions. ● Technology factors to consider prior to CBDC inception. ● Why interoperability is critical and must be considered from the start. ● Key advances in central bank ledger functionality, such as name-on-register protections, improved B2B settlement mechanisms, and B2C payment options. ● Protection of privacy while safeguarding compliance. ● How to create an effective foundation for CBDC with a smart contract application framework and digital ledger. The challenge of creating and implementing CBDC is large and complex, requiring a thoughtful approach and technology solutions that not only address current challenges but also facilitate future innovation and support yet-to-be known requirements and opportunities. The ability to start small, facilitate wide adoption, evidence controls, and maintain flexibility to maximize growth are essential. This paper particularly emphasizes the key requirements of privacy protection and interoperability. Digital Asset has undertaken extensive explorations of the technical aspects of CBDC, most recently presenting our approach at the OECD Policy Forum in November 2020. Digital Asset introduced an interoperability functionality, showing how CBDC can tie into any reasonably foreseeable workflow. Digital Asset has open sourced the code to make it broadly accessible and to reduce the risk of multiple CBDCs running on incompatible, siloed platforms.