Central Bank Digital Currency (CBDC) Models

Understanding CBDC models

Central Bank Digital Currencies represent a significant evolution in monetary systems, combining the reliability of central bank money with digital technology. The key models can be categorized based on:

1. Distribution architecture
2. Access framework
3. Technology infrastructure

Direct vs indirect CBDC models

Direct model

In the direct model, the central bank manages all retail CBDC operations, including:

• Account provision
• Transaction processing
• Customer authentication
• AML/KYC compliance

Indirect model

The indirect model operates through intermediaries, similar to the current two-tier banking system:

• Central bank issues wholesale CBDCs to intermediaries
• Intermediaries provide retail CBDC services
• Leverages existing financial infrastructure

Learn more about wholesale vs retail implementations in Wholesale CBDC vs Retail CBDC.

Token-based vs account-based models

The fundamental design choice between token and account-based models affects:

Token-based

• Bearer instrument like physical cash
• Authentication based on token validity
• Enhanced privacy features
• Potential for offline transactions

Account-based

• Similar to current digital banking
• Identity-based authentication
• Stronger regulatory compliance
• Easier integration with existing systems

Infrastructure considerations

CBDC infrastructure models must address:

Centralized architecture

• Traditional database technology
• Direct central bank control
• Higher transaction throughput
• Lower technical complexity

Distributed architecture

• Distributed Ledger Technology (DLT) based
• Enhanced resilience
• Programmable money features
• Complex consensus mechanisms

Real-time processing capabilities

Modern CBDC systems require sophisticated real-time processing:

Performance requirements

• High throughput capacity
• Low latency settlement
• 24/7 availability
• Scalability for peak loads

Interoperability considerations

CBDC models must address interoperability across multiple dimensions:

Domestic interoperability

• Integration with existing payment systems
• Compatibility with private sector solutions
• Cross-platform functionality

Cross-border functionality

• International payment connectivity
• Multi-CBDC arrangements
• FX conversion mechanisms

Monetary policy implications

Different CBDC models impact monetary policy tools:

Interest-bearing CBDCs

• Direct monetary policy transmission
• Potential for negative interest rates
• Competition with bank deposits

Non-interest-bearing CBDCs

• Cash-like characteristics
• Limited monetary policy impact
• Reduced financial disintermediation risk

Privacy and compliance frameworks

CBDC models must balance privacy with regulatory requirements:

Privacy considerations

• Transaction confidentiality
• Data protection standards
• User anonymity levels

Compliance requirements

• Know Your Customer KYC Compliance
• Anti-money laundering controls
• Transaction monitoring capabilities

Time-series data considerations

CBDC systems generate significant time-series data requiring:

Transaction monitoring

• Real-time flow analysis
• Pattern detection
• Anomaly identification

Performance metrics

• Transaction latency tracking
• System utilization monitoring
• Capacity planning data

Future considerations

CBDC models continue to evolve with:

Emerging technologies

• Quantum resistance
• Zero-knowledge proofs
• Advanced cryptography

Policy innovations

• Programmable money features
• Smart contract integration
• Cross-border arrangements

The development of CBDC models represents a critical evolution in monetary systems, requiring careful consideration of technical architecture, policy implications, and operational requirements. Success depends on balancing innovation with stability, privacy with compliance, and efficiency with security.