Central Bank Digital Currencies – How Might They Work in Practice?

Clifford Chance, 2020

10 Pages Posted: 25 Jan 2021

See all articles by Simon Gleeson

Simon Gleeson

Clifford Chance; Queen Mary University of London, School of Law - Centre for Commercial Law Studies

Caroline Dawson

Clifford Chance LLP

Diego Ballon Ossio

Clifford Chance LLP

Laura Douglas

Clifford Chance LLP

Laura Nixon

Clifford Chance LLP

Monica Sah

Clifford Chance LLP

Date Written: September 15, 2020

Abstract

Payment media, from gold coins to stablecoins, exist to be used, and in practice their use requires payment systems. In my paper ‘Central Bank Digital Currencies And Stablecoins – How Might They Work In Practice?’ I consider the way in which existing payment infrastructures and particularly payment banks — might reconfigure their services to accommodate Central Bank Digital Currencies (CBDCs) and stablecoins.

For this purpose, it is probably irrelevant whether the ‘coins’ concerned are created by central banks or private providers, or for that matter what the form is of the technology by which they are constituted. What does matter is that they are capable of being directly owned by the user without any intermediation. The question is whether that is how they will be dealt with in practice.

There are two possible ways in which this intermediation could be structured. One is where the intermediary provides a ‘custody’ service. This will involve the customer being charged for the service, since the custodian derives no benefit from his holding of the asset. The other is where title to the coin is passed to the intermediary. This will enable the intermediary to use the asset in his business, and therefore result in the customer paying lower or no fees for the intermediation.

Since a legal structure involving a ‘custody’ structure — where the customer retains direct ownership of the coin — will be a more expensive offering for that customer, it seems unlikely that this will be the prevalent model. However, a structure involving a transfer of ownership of the coins to the bank would seem to have no benefits over the existing bank account offerings, and would arguably be worse for the customer, in that the customer potentially loses the benefit of deposit insurance (since a deposit of stablecoins is arguably not a ‘deposit’ for that purpose).

Keywords: CBDC, Crypto, DLT, Banking, Wallet, Payments, Payment Services

JEL Classification: E50, E58, K22, K11

Suggested Citation

Gleeson, Simon and Dawson, Caroline and Ossio, Diego Ballon and Douglas, Laura and Nixon, Laura and Sah, Monica, Central Bank Digital Currencies – How Might They Work in Practice? (September 15, 2020). Clifford Chance, 2020, Available at SSRN: https://ssrn.com/abstract=3730906

Simon Gleeson (Contact Author)

Clifford Chance ( email )

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Queen Mary University of London, School of Law - Centre for Commercial Law Studies ( email )

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Caroline Dawson

Clifford Chance LLP ( email )

31 west 52nd Street
New York, NY 10019-6131
United States

Diego Ballon Ossio

Clifford Chance LLP ( email )

31 west 52nd Street
New York, NY 10019-6131
United States

Laura Douglas

Clifford Chance LLP ( email )

31 west 52nd Street
New York, NY 10019-6131
United States

Laura Nixon

Clifford Chance LLP ( email )

31 west 52nd Street
New York, NY 10019-6131
United States

Monica Sah

Clifford Chance LLP ( email )

31 west 52nd Street
New York, NY 10019-6131
United States

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