The Bank for International Settlements (BIS) has released a detailed framework for designing retail central bank digital currencies (CBDCs), with a focus on a hybrid model that combines central bank control with collaboration from the private sector. Developed by the Consultative Group on Innovation and the Digital Economy (CGIDE), the report serves as a guide for central banks in the Americas and worldwide as they consider implementing this innovative financial tool. The hybrid model proposed allows central banks to maintain governance over CBDC issuance and infrastructure while entrusting user-facing responsibilities to private intermediaries. These intermediaries would handle tasks such as Know Your Customer (KYC) verification, wallet management, and transaction facilitation, ensuring efficiency, scalability, user privacy, and compliance with anti-money laundering (AML) regulations.
The architecture of the hybrid model includes four key processes: user enrollment, CBDC issuance (cash-in), CBDC withdrawal (cash-out), and intra-ledger transfers. Notably, the system supports tiered KYC mechanisms, offering basic wallets for low-value transactions with minimal identity requirements and advanced wallets for higher-value transactions with stricter regulatory standards. A significant feature of the proposal is offline payment capabilities, aimed at increasing access for underserved and unbanked populations. The report states that the hybrid model bridges the gap between centralization and decentralization, providing resilience, accessibility, and enhanced privacy protections.
The BIS report also highlights the advanced functionalities that CBDCs could bring to the financial ecosystem, including programmability through smart contracts, asset tokenization, and seamless integration with decentralized finance (DeFi). These features have the potential to enhance liquidity, automate transactions, and create new financial arrangements, positioning CBDCs as fundamental tools for modern economies. Tokenized CBDCs, for example, could simplify financial settlements by enabling atomic transactions and facilitating cross-border payments, ultimately reducing costs, processing times, and promoting competition and efficiency. The report also discusses how a programmable CBDC platform could revolutionize supply chain financing and support innovative payment methods like contingent payments.
The BIS report reflects on global experiences with CBDCs, citing examples such as Jamaica’s JAM-DEX, China’s e-CNY, and Peru’s offline-enabled pilot program targeting rural areas. It also addresses technical challenges associated with implementing CBDCs, such as interoperability with existing payment systems, ensuring privacy while complying with regulations, and safeguarding against cyber threats. The BIS emphasizes that the proposal is a flexible framework designed to stimulate discussions and gather feedback from various stakeholders, illustrating the potential for central bank digital currencies to reshape the future of finance.
