The Bank for International Settlements (BIS) produced a chapter in its annual economic report in June asserting that central bank digital currencies (CBDCs) are in the public interest. It concludes that CBDCs will likely have to work in a two-tier, account-based system, instead of being either token-based or held in direct accounts at the central banks.
This probably calls for a hybrid architecture where the private sector onboards all clients, is responsible for enforcing anti-money laundering regulations and conducts all retail payments. However, the central bank also records retail balances and acts as a backstop to the payment system. Should a payments service provider fail, the central bank has the necessary information to substitute for it.
The e-CNY, the CBDC issued by the People’s Bank of China and currently in a trial phase, exemplifies such a design.
The BIS cannot get away from the fact, however, that even with a two-tier system people will now have some kind of account-based claim on the central bank itself.
Limits
It will probably require negative interest rates and caps on how much CBDC people can hold to preserve bank funding.