The technology of retail central bank digital currency[1]

This paper is graphically represented as the “CBDC pyramid”, which maps

consumer needs onto the associated design choices for the central bank. They
represent the four layers of the CBDC pyramid. They access the legal structure of
claims and the operational rules of the central bank and private institutions in
different CBDC architectures. They discuss the choices between distributed ledger
technology (DLT) and a currently controlled infrastructure. They compare token-
based systems and account-based systems. They access how the development of
CBDCs might reinforce current efforts to overhaul cross-border payments.
The lower layer of the CBDC pyramid is the legal structure of claims and the
respective operational roles of the central bank and private institutions in the area
of payments. There are three architectures, and all architectures can be account or
token based and can run on different interfaces. These three architectures are 1.
Indirect CBDC, 2. Direct CBDC and 3. Hybrid CBDC. Indirect CBDC is also
known as a two-tier CBDC for its resemblance to the existing two-tier financial
system. This type of CBDC is not a direct claim against the central bank. Instead,
the intermediary is mandated to fully cover any outstanding indirect obligation
similar to the CBDC to the consumer towards retail consumers through its holding
of actual CBDCs deposited with the central bank. As in today's system, all
communication with retail clients, net payments, and send payment messages to
other intermediaries and wholesale payment instructions to the central bank. On
the downside, however, the central bank does not keep any records of individual
claims and there is no direct evidence of a cash-like claim. Thus, the central bank
cannot settle receivables from consumers, while not data from intermediaries. If
the intermediary is stressed, determining the legitimate owner may involve a likely
lengthy and costly legal method with an uncertain outcome. CBDC KYC direct
architecture and customer due diligence can be performed by the private sector or a
central bank or other public sector institution. This architecture eliminates provider
dependency by removing them. One aspect is that building and operational
technical capabilities at this scale are usually considered higher than the private
sector, as seen in today's credit card networks. Second, although the central bank
was supposed to create the required technological capacity, the subsequent CBDC
may be less attractive to consumers than today's retail payment systems. Electronic
payments should change outages or offline payments that involve risking
intermediaries. Significantly, it is the customer relationship - supported by KYC -
that allows the intermediary to easily accept such risks. If the central bank did not
take responsibility for the KYC and the client's due diligence - which would
require a massive expansion of operations far beyond existing mandates - it would
be difficult to provide this service. The hybrid architecture model of direct demand
to the central bank is combined with the private sector message layer. One of the
key elements of the CBDC hybrid architecture is the legal framework, which
supports claims, keeps them separate from the balance sheets of payment service
providers and enables portability. If the payment service provider fails, the CBDC's
holding shall not be considered as part of the payment service provider's assets
available to creditors. The legal framework should also allow for mass portability,
ie giving the central bank the power to change relationships with retail customers
from a declining payment service provider to a fully operational one. The second
key element is the technical ability to enable the portability of businesses. Whereas
the requirement is to maintain payments when one intermediary is under technical
pressure, the central bank must have the technical capacity to restore retail
balances. It thus retains a copy of all CBDC retail holdings, which allows it to
transfer CBDC retail holdings from one PSP to another in the event of a technical
failure.
What infrastructure may the different CBDC architectures require for the central
bank and how could they be implemented in the most robust way possible? This
choice, represented as the second stage of the CBDC pyramid, follows
immediately after the architecture decision, as the infrastructure requirements for
the central bank differ significantly across the three architectures. In conventional
databases, resilience is usually achieved by storing data across multiple physical
nodes that are controlled by a single authoritative entity - the highest node in the
hierarchy. Neither a DLT-based system nor a conventional system has a clear
advantage in terms of achieving durability. Vulnerabilities are simply different.
Once the architecture and infrastructure of the CBDC has been chosen, the
question arises of how and to whom access should be provided. This is the third
layer of the CBDC pyramid. The first option is to follow the traditional account
model and tie ownership to an identity. But the downsides are heavy. One is the
high risk of losing funds if end users cannot keep their private keys private. Also,
difficulties will arise in designing an effective AML/CFT framework for such a
system. In such a system, the vendor is provided with proof that a particular
invoice has been paid, but no information about the payee is disclosed.
Once the configuration of a CBDC and how established consumers can access it
becomes clear, the question arises whether it can only be used nationally or
elsewhere. This is the top layer of the CBDC pyramid. A CBDC may come with
the same wholesale interconnection options discovered in the current system. A
notable aspect here is that a coordinated CBDC design effort can take a clean slate
perspective and incorporate these interconnection options right from the start.
In the current account-based system, a cross-border transaction is inseparable from
a foreign exchange transaction. On the other hand, if consumers had the option of
buying foreign currency in advance, before spending it abroad, as they can with
cash, this would separate the payment from the foreign exchange transaction. In
turn, this would open up the possibility of interfacing retail portfolios directly with
competitive forex markets. If a national system is based on digital tokens, it’ll by
default be accessible to foreign residents.

Blockchain Implementation Method for Interoperability between

CBDCs[2]
This paper proposes a blockchain system and management methodology supported
by the ISO/IEC 11179 information written account for exchange between CBDCs
that records transactions between registered CBDCs. They're implementing the
blockchain system and experimenting with the operation methodology, measuring
the block generation time of blockchains victimization the planned methodology.
The ISO/IEC 11179 information written account is a world normal for information
ability. They discuss a way to exchange and receive transactions between CBDCs.
The data elements are represented by the Object Class, Property, and
Representation. Feature classes provide a structure to represent the objects in the
data and represent the concepts that hold the data. A Data element is represented as
a combination of a value domain, a data type, and a unit of measure. CBDC can
represent data using enumerations. Central banks organize groups for CBDC
transactions. According to the registration procedure, the central bank group runs
the Sender, Officer, and Control Committee; agrees on identification, dispatch,
control, and confirmation, and may register and identify the CBDC in the MDR.
Also, central banks can keep the CBDC registered in the MDR up to date. The
blockchain contains transactions between CBDCs in the transaction and. The
transaction consists of the sender's amount, CBDC address, and the receiver's
Amount and CBDC address. MDR helps to verify the CBDC of the transaction.
The Smart Contract waits for the transaction running with block generation to
create the block. The sending CBDC burns the sending amount and the receiving
CBDC prints the received amount. Eventually, every central bank recognizes
CDBC as a burn and mint operation. MDR-based CBDC blockchain model.
We apply the proposed method to ECCPoW crypto money systems. ECCPoW is a
PoW method that uses error correction code.

Cryptocurrency exchanges have both a centralized and decentralized exchange

method. We compare the proposed method with the exchange's use of technical
blockchain, Private Key lease, liquidity amount, transaction liability, transaction
target cryptocurrency, and cryptocurrency information management. The technical
use of the blockchain uses the recommended method, while the decentralized
exchange uses the blockchain to store transactions.

The use of blockchain technology can determine whether a transaction will

proceed without an arbitrator. Decentralized exchanges disclose transaction details
and technically guarantee trust. A private key lease is not required for the proposed
method and distributed exchange. Cryptocurrency security incidents typically
occur on exchanges rather than blockchains.
The transaction obligation is a legal entity that guarantees the cryptocurrency. If
there is a problem with the transaction, he is responsible for resolving and
reimbursing the problem. The proposed method is the responsibility of the central
bank as an intergroup transaction. A central exchange is responsible for the
transaction.
The decentralized exchange technically guarantees the reliableness of the dealings.
However, if there's a retardant with the dealings, the liability is also unclear. The
transaction target cryptocurrency is as follows. The proposed method will upset
CDBC, decentralized exchanges with an equivalent hash-function cryptocurrency,
and centralized exchanges with all cryptocurrencies.
Examples of this embody ERC-20 Coin and Bitcoin Hard Fork Cryptocurrency.
Cryptocurrency information management is feasible with the proposed method and
centralized exchange. The proposed method is managed by the public groups of the
central bank based on the MDR. The centralized exchange can further manage the
cryptocurrency allowed by the exchange.
In practice, blockchain structures will be needed to effectively manage CBDCs
implemented in many ways. Given the growing need for central banks for the
CBDC, this document presents a method of sharing between the CBDC. According
to the BIS, quite eighty-four of central banks square measure concerned in CBDC-
related transactions, indicating that a lot of CBDCs are issued shortly. The need for
interoperability will therefore be more important for the success of the CBDC.

Central Bank Digital Currencies in Africa why CBDCs could be

a disaster for the continent[3]
This paper concludes that African countries should decide whether or not to cede
their sovereign power to associate freelance financial authority with single digital
currency to manage beneath their management or cede their economic and
monetary destiny to unaccountable foreign Big Fintech and/or foreign sovereign
CBDCs in a variety of digital. After more than a decade of skepticism, economies
around the world are grappling with the irreversibility of digital currencies and
their impact on national economies and the international monetary system. After
sleeping on their jobs, central banks around the world are committed to catching up
with a “new normal” of freely mobile money in the digital age. While digital
currency is expected to impact the monetary and financial stability policies of all
nations, its impact on the least developed countries and some emerging economies
could be devastating with potential digital dollarization, increased volatility, and
instability in markets. national digital currencies.
This is reflected in opposition to the defunct Facebook Libra project and the
general reluctance to global stable coins, which make both emerging and advanced
economies prone to digital dollarization. Still, as the central bank’s collapse to
keep their feet moving, they seem to be closing the barn door after the horse
jerked. Under these circumstances, African central banks and governments must
embark cautiously on the CBDC's journey. In the absence of a national and/or
regional regulatory framework for crypto active assets, the CBDC in Africa could
be a disaster for the continent without addressing the persisting weakness of local
currencies, and unfair international monetary system, high inflation, and economic
instability.
The good news, however, is that digital currency technology also provides Africa
with a unique opportunity to develop and manage a single regional digital
currency, and African countries must decide whether to transfer their sovereign
power to an independent single bank with a single digital currency. manage under
its control or transfer its economic and financial destiny to irresponsible foreign
Big Fintech and/or foreign sovereign CBDC in the form of digital dollarization.
Reference:
[1] R. Auer and R. Böhme, “The Technology of Retail Central Bank Digital
Currency,” Social Science Research Network, Rochester, NY, SSRN Scholarly
Paper ID 3561198, Mar. 2020. Accessed: Oct. 30, 2021. [Online]. Available:
https://papers.ssrn.com/abstract=3561198
[2] H. Jung and D. Jeong, “Blockchain Implementation Method for
Interoperability between CBDCs,” Future Internet, vol. 13, no. 5, Art. no. 5, May
2021, doi: 10.3390/fi13050133.
[3] D. Nantogmah, V. Sampson, and O. Abeiku, “Central Bank Digital
Currencies in Africa why CBDCs could be a disaster for the continent,” Res. J.
Finance Account., vol. 12, pp. 15–25, Sep. 2021.