Since CBDCs core principles relie on the resemblence of cash and its convenience of use — as indicated by the first and second bottom layers from Figure I, the whole operational architecture will depend on these two needs.
However, the desing choice will be shaped by two main questions raised in Auer et al.; ‘Is the CBDC a direct claim on the CB or is the claim indirect, via payment intermediaries? What is the operational role of the CB and of private sector intermediaries in day-to-day payments?’
CBDC’s Pyramid Bottom Layer: Indirect or Direct Claims?
We must deem the nature of the CB which becomes the only entity issuing and redeeming these digital currencies. Furthermore, technical architectures of CBDC, presented in Figure II below, may also turn around whether we are dealing with either account- or token-based currencies, which may require different operational infrastructures.
- The “Synthetic CBDC” or “Indirect CBDC”
The first CBDC model, referred to as “synthetic CBDC” (Adrian and Mancini- Griffoli, 2019) or “indirect CBDC”, represents, as indicated by its name, consumers’ indirect claim on the CB. A third-party, serving as the intermediary (labelled as “CBDC bank” in the model) promises to back each indirect CBDC (labelled as ICBDC) to retail consumers (households and firms) via its actual holdings of fiat money — which could be CBDCs or any other type of legal tender money — deposited in CB’s accounts.
It is by this channel of intermediaries where CBs would give up part of their dominance of the system and externalise their services, thereby providing partial anonymity (which is one of the main households’ preferences, as already mentioned). However, this may trigger crucial costs for CBs since they would no longer hold whole control on the record of financial transactions, i.e. individual claims — they would only record wholesale holdings.
2. The “Direct CBDC”: Simplicity at the Cost of Anonymity
On the other hand, the elimination of dependence of third-parties may discourage consumers from using a cash-like CBDC since it would lack anonymity. Under a CBDC directly operated by a CB, accounts would be entirely managed by this institution, becoming hitherto the only handling institution.
Voices from the private sector remind Central Banks of the low experience in know-your-consumer (KYC) services and, therefore, highlight their main stance of the infeasibility of a CBDC system primarily and solely orchestrated by Central Banks.
In this scenario, a third type of legal claim comes into play: a “hybrid CBDC”.
3. “Hybrid CBDC”: The Optimal Decision?
In this case, a CBDC would still be deemed as a claim on the Central Bank but there would also exist intermediaries which would hold partial influence on the legal claim. These Payments Service Providers (PSP)would, however, be indirectly ‘governed’ by CBs; were a PSP to fail, the Central Bank would choose another functional PSP, moving the claims in bulks from the failing ones to the new ones.
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Source: https://mclotet200.medium.com/my-short-take-on-the-legal-structure-behind-a-retail-cbdc-ae6fbd2bc191?source=rss——-8—————–cryptocurrency
