The Bank of Canada has identified key models for retail Central Bank Digital Currencies (CBDC) to follow to ensure a common framework across different platforms. The proposed archetype was included in a staff analytical note written by Sriram Darbha and has been described to “cover a wide range of possible CBDC designs.”
The bank argues that the first archetype is that the CBDC should be centralized by one entity, most likely the issuing central bank. The analysis, however, noted that there could be instances of a collection of multiple components operating as one centralized body.
The next model identified is the leaderless archetype akin to the method of achieving consensus in distributed ledger technology (DLT). CBDCs may choose to operate as either a macro-partitioned or a micro-partitioned archetype or adopt a direct method without needing third parties.
“Our analysis suggests that no archetype scores highly across all criteria, so a design based on a single archetype is not likely to satisfy all policy goals,” read the analysis. “Instead, guided by the policy goals of their jurisdiction, policymakers should consider a design that combines aspects of multiple archetypes.”
The archetypes were ranked according to privacy, visibility, scalability, resilience, and suitability for offline and online payments. In the end, the centralized archetype ranked above the others with the only potential downside of privacy issues.
Privacy is the bane of CBDC design
One of the major drawbacks of CBDC designs worldwide is the nagging privacy challenge. This challenge has fuelled the increasing adoption of digital assets like stablecoins, but despite assurances from central banks on proper measures to safeguard user data, the fears have lingered.
In the European Central Bank (ECB) public consultation on the viability of CBDCs, participants ranked privacy concerns as part of their recommendations. However, Fabio Panetta, an ECB board member, allayed fears that “in a baseline scenario, a digital euro would provide people with a level of privacy equal to or higher than that of private digital solutions.”
The People’s Bank of China (PBoC) has come under fire for allegedly using the digital yuan as a state surveillance tactic which it has repeatedly denied. The claims were also echoed by United States Congressmen, warning China could use the digital yuan to spy on U.S. citizens.
The Chinese Embassy in Washington D.C. refuted the allegations, while Mu Changchun, head of the Digital Currency Institute at the PBoC, told attendees of a conference that only limited personal information is used and access to it will be highly restricted.
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