Regulating Central Bank Digital Currencies: Towards a Conceptual Framework

Abstract

Due to technological change and the rise of private digital currencies more and more central banks investigate the possibility of issuing their own Central Bank Digital Currency (CBDC). This paper develops a conceptual framework, which shows how the issuance of CBDC and the provision of access can be regulated. Therefore, theoretical CBDC designs and existing jurisdictions from around the world are considered. The framework points out that the regulation of CBDC encompasses two components: on the one hand, the regulation of the legal form of CBDC. On the other hand, the level of obligation, which indicates how legally binding the issuance and provision of access is for the central bank and potentially involved third parties. Besides, this paper discusses the pros and cons of different regulatory options to find out how CBDC should be regulated. It concludes that only a right to CBDC for everyone is non-discriminatory and therefore favorable in the view of consumers. Furthermore, it is favorable to let third parties provide access to CBDC since this potentially increases competition and reduces operational duties for the central bank. While payment service providers are more suitable as third parties for CBDC stored on a central ledger, technical service providers are for CBDC stored on a distributed ledger.

Keywords: central bank digital currency, banking regulation, electronic money, narrow banking, distributed ledger technology

JEL Classification: E42, E58, G21, G23, G28, K22, K23