The design choices of the CBDC must follow the needs of the customers

The Bank for International Settlements (BIS) is an international financial institution owned by 62 central banks. In the latest report focused on the CBDC topic, the group outlined six of the main consumer needs: privacy, ease of use, cash-like security, universal access, cross-border payments and peer-to-peer usability similar to cash. Let's see some in detail.

Indirect or direct complaints?

The basis of the CBDC infrastructure concerns the legal structure of the claims. The report presented three design options, outlining their advantages and disadvantages. The first is an indirect model in which the CBDC does not require the central bank to manage dispute resolution and offers "the convenience of today's intermediary-based systems". However, the central bank would have no documentation relating to individual credits and there would be no direct evidence of the credit. The second is a direct model in which the CBDC eliminates intermediaries but is not up to par in terms of reliability, speed and efficiency. The third model is hybrid and combines the solutions of the other two options.

Conventional or DLT-based central bank infrastructure?

According to the report, both options have security advantages and disadvantages. With the conventional infrastructure, where data is stored on multiple physical nodes, the system is vulnerable to a targeted hacking attack on the upper node. With a DLT-based system, on the other hand, there is a risk associated with the consent mechanism in the case, for example, of a denial of service. "The consumer's need for cash-like payment security means that a CBDC must be protected not only from the insolvency or technical problems of intermediaries, but also from central bank outages," noted the report. "When it comes to achieving resilience, neither a DLT-based system nor a conventional one has a distinct advantage," he continued.

Account-based or token-based access technology?

The third key question is how and to whom access should be granted. The conventional model follows the account model in which the credits are managed as for a bank account. Alternatively, a token-based system may exist where anyone can obtain a digital signature. The second option allows universal access and security, but users could introduce risks into the system if they reveal their private keys. As a result, the report favors a system in which "a CBDC preserves the privacy of its users towards their transaction partners. In such a system, the merchant is provided with proof that payment has been made for a specific invoice, but no information is disclosed about the payee, "says the report.

Wholesale or retail interconnections?

Cross-border payment and the ability to participate in thriving international e-commerce are another central need for consumers. Therefore, the report recommended central banks to implement new retail connections from the outset to allow consumers to hold more than one digital currency. At the same time, however, the exact way of setting up these retail links will depend on the access model.