Design Choices for Central Bank Digital Currency: Policy and Technical Considerations

110 Pages Posted: 29 Jul 2020

See all articles by Sarah Allen

Sarah Allen

Cornell University

Srdjan Capkun

ETH Zürich

Ittay Eyal

Cornell University

Giulia Fanti

University of Illinois at Urbana-Champaign - Department of Electrical and Computer Engineering

Bryan Ford

affiliation not provided to SSRN

James Grimmelmann

Cornell Law School; Cornell Tech

Ari Juels

affiliation not provided to SSRN

Kari Kostiainen

University of Massachusetts Amherst - Department of Computer Science

Sarah Meiklejohn

University of Massachusetts Amherst - Department of Computer Science

Andrew Miller

University of Illinois at Urbana-Champaign

Eswar S. Prasad

Cornell University - Dyson School of Applied Economics and Management; Cornell University - Department of Economics; Brookings Institution; NBER; IZA Institute of Labor Economics; Cornell SC Johnson College of Business

Karl Wüst

University of Massachusetts Amherst - Department of Computer Science

Fan Zhang

Cornell University

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Abstract

Central banks around the world are exploring and in some cases even piloting Central Bank Digital Currencies (CBDCs). CBDCs promise to realize a broad range of new capabilities, including direct government disbursements to citizens, frictionless consumer payment and money-transfer systems, and a range of new financial instruments and monetary policy levers. CBDCs also give rise, however, to a host of challenging technical goals and design questions that are qualitatively and quantitatively different from those in existing government and consumer payment systems. A well-functioning CBDC will require an extremely resilient, secure, and performant new infrastructure, with the ability to onboard, authenticate, and support users on a massive scale. It will necessitate an architecture simple enough to support modular design and rigorous security analysis, but flexible enough to accommodate current and future functional requirements and use cases. A CBDC will also in some way need to address an innate tension between privacy and transparency, protecting user data from abuse while selectively permitting data mining for end-user services, policymakers, and law enforcement investigations and interventions. In this paper, we enumerate the fundamental technical design challenges facing CBDC designers, with a particular focus on performance, privacy, and security. Through a survey of relevant academic and industry research and deployed systems, we discuss the state of the art in technologies that can address the challenges involved in successful CBDC deployment. We also present a vision of the rich range of functionalities and use cases that a well-designed CBDC platform could ultimately offer users.

Keywords: new financial technologies, digital money, cryptocurrencies, payment systems

JEL Classification: E42, E52, E58, 031

Suggested Citation

Allen, Sarah and Capkun, Srdjan and Eyal, Ittay and Fanti, Giulia and Ford, Bryan and Grimmelmann, James and Grimmelmann, James and Juels, Ari and Kostiainen, Kari and Meiklejohn, Sarah and Miller, Andrew and Prasad, Eswar S. and Wüst, Karl and Zhang, Fan, Design Choices for Central Bank Digital Currency: Policy and Technical Considerations. IZA Discussion Paper No. 13535, Available at SSRN: https://ssrn.com/abstract=3660282 or http://dx.doi.org/10.2139/ssrn.3660282

Sarah Allen (Contact Author)

Cornell University ( email )

Ithaca, NY 14853
United States

Srdjan Capkun

ETH Zürich ( email )

Rämistrasse 101
ZUE F7
Zürich, 8092
Switzerland

Ittay Eyal

Cornell University ( email )

Ithaca, NY 14853
United States

Giulia Fanti

University of Illinois at Urbana-Champaign - Department of Electrical and Computer Engineering

Bryan Ford

affiliation not provided to SSRN

James Grimmelmann

Cornell Tech ( email )

2 West Loop Road
New York, NY 10044
United States

Cornell Law School ( email )

Myron Taylor Hall
Cornell University
Ithaca, NY 14853-4901
United States

Ari Juels

affiliation not provided to SSRN ( email )

Kari Kostiainen

University of Massachusetts Amherst - Department of Computer Science

Sarah Meiklejohn

University of Massachusetts Amherst - Department of Computer Science

Andrew Miller

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL Champaign 61820
United States

Eswar S. Prasad

Cornell University - Dyson School of Applied Economics and Management ( email )

440 Warren Hall
Ithaca, NY 14853
United States

HOME PAGE: http://prasad.aem.cornell.edu

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

Karl Wüst

University of Massachusetts Amherst - Department of Computer Science

Fan Zhang

Cornell University ( email )

Ithaca, NY 14853
United States

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