Interoperability as a Critical Design Choice for Central Bank Digital Currencies
22 Pages Posted: 22 Sep 2022
Date Written: August 31, 2022
Interoperability is a key economic and technical consideration for payment systems. This paper explores the implications of interoperability for central bank digital currencies (CBDCs). CBDCs are digital representations of central bank money. A critical question is how those digital representations can interoperate with other CBDCs, private blockchains, and permissioned blockchains. By comparing prevailing CBDC interoperability models with interoperability in blockchain ecosystems, the paper finds that CBDC architectural choices are deeply intertwined with policy choices in a way not yet understood by the scholarly and policy literature. Widely discussed CBDC policy questions (such as whether a CBDC should be retail or wholesale, whether interest should be paid on CBDC holdings, and how privacy should be protected) are better understood as choices around interoperability. The paper concludes by connecting the CBDC policy debate to a parallel debate about fiat-backed stablecoin architecture and governance.
Keywords: central bank digital currency, blockchain, interoperability, payments system
JEL Classification: H41, E58, O32
Suggested Citation: Suggested Citation