Central Banks

Google Ad

The Swiss National Bank announced they are to test a transfer of central bank digital currency funds. "We will try some cross-border functionality." "There will be another central bank and another currency other than the Swiss franc. " said Thomas Moser of the SNB's governing board. The test follows the researxh paper "How to Issue a Central Bank Digital Currency"

Swiss National Bank

Thomas Moser of the SNB's governing board Thomas Moser (an alternate member of the Swiss National Bank's governing board) announced the CBDC  test:

"We will try some cross-border functionality." "There will be another central bank and another currency other than the Swiss franc. It will be the real thing, there is no simulation. There will be another central bank with their system, so it is going to be as if we were going live." Reuters reported

The SNB paper on the Central Bank Digital Currency (CBDC) discusses many of the common questions of digital curencies. Below we reproduce soem key points and look forward to readers inputs.

"How to Issue a Central Bank Digital Currency*

  • By David Chaum a , Christian Grothoff b and Thomas Moser
  • Network b Bern University of Applied Sciences and GNU Project c Swiss National Bank
  • This version: January 2021 First version: May 2020

The token-based CBDC proposed here also allows the preservation of a key feature of physical cash: transaction privacy. It is usually argued that cryptographic privacy protections are so computationally demanding that the high resource requirements make their use on mobile devices infeasible (see Allen et al. 2020). While this may be true in the context of DLT, where public traceability of transactions is necessary to prevent double1

There may be good use cases for DLT in the case of financial market infrastructure, such as digital exchanges, where the question of how to get central bank money onto the DLT for settlement purposes arises. However, in those situations, the potential benefits of DLT, e.g., lower costs or automatic reconciliation, do not arise from a decentralized issuance of central bank money. 34 4 spending (Narayanan et al. 2016), it is not true for the Chaum-style blind-signature protocol with a central bank proposed in the present paper.

Our CBDC, based on blind signatures and a two-tier architecture, guarantees perfect, quantum-resistant transaction privacy while providing anti-money laundering (AML) and counter terrorism financing (CFT) protections for society that are actually stronger than those of banknotes.

Transaction privacy is important for three reasons.

First, it protects users from government scrutiny and surveillance abuses. Mass surveillance programs are problematic even if people believe they have nothing to hide, simply because of the potential for error and abuse, particularly if such programs lack transparency and accountability (see Solove 2011).

Second, transaction privacy protects users from data exploitation by payment service providers. Third, it protects users from the other party in a transaction, ruling out the possibility of ex-post opportunistic behavior or security risks due to the failure or neglect of customer data protection (see Kahn et al. 2005).

In the author's conclusion

With the emergence of Bitcoin and the recently proposed digital currencies from BigTech, such as Diem (formerly Libra), central banks ace growing competition from actors offering their own digital alternative to physical cash. Central banks’ decisions on whether to issue a CBDC or not depend on how they assess the benefits and risks of a 28 29 29 CBDC. These benefits and risks, as well as the specific jurisdictional circumstances that define the scope of retail CBDC, are likely to differ from one country to another.

If a central bank decides to issue a retail CBDC, we propose a token-based CBDC that combines transaction privacy with KYC and AML/CFT compliance. Such a CBDC would not compete with commercial bank deposits but rather replicate physical cash, thereby limiting financial stability and monetary policy risks.

Source: SNB

From The TradersCommunity Research Desk

Log in to comment
Discuss this article in the forums (0 replies).