CENTRAL BANK DIGITAL CURRENCY (CBDC) FORMATS AND THEIR IMPLICATIONS

Abstract

Digital currencies using distributed ledgers can be a digitized version of currency while retaining its four major features: (1) anonymity, (2) peer-to-peer (P2P) exchangeability, (3) universality, and (4) a steady titular value. There is a variety of potential solutions (formats) that can be adopted depending on the attributes and impact of each format on the financial system. This chapter characterizes and examines the benefits, opportunities, costs, and challenges of four key formats, and gives its assessment on the feasibility as well as possibility of practical adoption. Finally, it recommends the adoption of a CBDC (non-universal) for the interbank settlement and wholesale payment systems which has a minimal disruption to the economy, stronger monetary policy transmission and suggests way forward for adoption of an interest-free monetary system.