What additional potential policy considerations of a Central Bank Digital Currency (CBDC) may exist that have not been raised in this paper?
A major risk to the CBDC is the Governance of a very large, complex system. which encompasses:
CBDC Governance is the system that controls the entities and direction of the CBDC effort. Its primary concern is the structure and processes for decision-making, accountability, control and behavior at the top of the CBDC. CBDC governance will set the organization’s objectives, measure how well these objectives are achieved, monitor risks to the CBDC, and set actions in place to mitigate those risks. Governance is a system and a process, not a single activity; therefore successful implementation of a good governance strategy requires a systematic approach that incorporates strategic planning, risk management, and performance management. Like culture, it is a core component of the unique characteristics of a successful organization.
Some “desirements” in the Money and Payments: The U.S. Dollar in the Age of Digital Transformation White Paper and summarized in the OMG's CBDC WG White Paper Analysis done by the Object Management Group's CBDC Working Group allude to the Governance areas shown in the table below:
| Governance Area | OMG Identified “desirements” |
|---|---|
| Legislation, Laws, and Regulations |
|
| External Federal Reserve, US Government Organization |
|
| External US Entities |
|
| Private Sector Parties |
|
| Purpose-built Hardware |
|
| Purpose-built Software |
|
| Purpose-defined Data |
|
B = Benefit Considerations |
|
P = Policy Considerations |
|
R = Risk Considerations |
|
D = Design Considerations |
|
This discussion is divided into the sections mapped out in Table 1.
Return to Discussion of Examples
Some “desirements” identified in CBDC White Paper by the OMG's CBDC WG's White Paper Analysis effort map to Legislation, Laws, and Regulations.
| Statement No. | Page No. | Statement |
|---|---|---|
| P0011 | 3 | The Federal Reserve does not intend to proceed with the issuance of a CBDC without clear support from:
|
| P0030 | 21 | The Federal Reserve will only take further steps toward developing a CBDC if:
|
P0030 indicates that any actions taken regarding the CBDC require prior approval from the Executive and legislative branches of the government; however, P0030 indicates that research can proceed to determine the alternatives and benefits of a CBDC.Return to Discussion of Examples
Some “desirements” identified in CBDC White Paper by the OMG's CBDC WG's White Paper Analysis effort map to US Government organizations external to the Federal Reserve.
| Statement No. | Page No. | Statement |
|---|---|---|
| B0006 | 2 | Provide broad support from key stakeholders |
| B0011 | 7 | Make payments:
|
| B0052 | 19 | Prevent Financial money laundering crimes |
| B0053 | 20 | Provide resiliency to threats to existing payment services—including:
|
| D0017 | 20 | Design should include digital payments in areas suffering from large disruption, such as natural disasters |
B0006 advises that the Federal Reserve should consider other government organizations as stakeholders in the CBDC. Just based upon B0011, B0052, B0053 and 'D0017, some of those organizations might be: US Treasury, FDIC, ACH, FEMA, DHS, DoD, SEC, FBI, Secret Service, etc.Return to Discussion of Examples
Some “desirements” identified in CBDC White Paper by the OMG's CBDC WG White Paper Analysis effort map to External US Government organizations.
| Statement No. | Page No. | Statement |
|---|---|---|
| B0005 | 2 | Protect against criminal activity |
| B0009 | 3 | Provide faster and cheaper payments (including cross-border payments) |
| B0015 | 9 | Reduce cross-border costs to benefit:
|
| B0041 | 15 | Support streamlining cross-border payments |
| B0052 | 19 | Prevent Financial money laundering crimes |
| P0005 | 2 | Protect against criminal activity |
| R0014 | 13 | Risk of not achieving an appropriate balance between safeguarding the privacy rights of consumers and affording the transparency necessary to deter criminal activity |
| D0009 | 18 | Design should allow for significant foreign demand for CBDC, furthering complicate monetary policy implementation |
B0005, B0052, P0005, R0014 are all targeted at preventing criminal activities. Although there is a lot of criminal activity within the US, in this modern age of internationalism, it is important to elicit the help of foreign governments in detecting and tracking down criminal activities.B0009, B0015, B0041 are all targeted at cross-border payments and remittances, which naturally would require the participation of foreign governments and institutions. D0009 is concerned with foreign demand for CBDC, which again would point to some foreign governments and institutions being involved.Return to Discussion of Examples
Some “desirements” identified in CBDC White Paper by the OMG's CBDC WG White Paper Analysis effort are intended for Private Sector organizations.
| Statement No. | Page No. | Statement |
|---|---|---|
| B0006 | 2 | Provide broad support from key stakeholders |
| B0029 | 14 | Suport basic purchases of:
|
| B0033 | 15 | Support a level playing field in payment innovation for private-sector firms of all sizes |
| B0037 | 15 | Support private-sector innovation |
| B0038 | 15 | Allow private-sector innovators to focus on:
|
| B0046 | 16 | Enable rapid and cost-effective delivery of:
|
| P0012 | 7 | The firms that operate inter-bank payment services are subject to federal supervision |
| P0013 | 7 | Systemically important payment firms are subject to
|
| P0020 | 13 | The private sector would offer accounts or digital wallets to facilitate the management of CBDC holdings and payments |
| R0005 | 7 | New payment services could pose Risks to:
|
| D0014 | 20 | Design should involve private-sector partners with established programs to help ensure compliance with existing rules |
The Private Sector Participation in the CBDC is subdivided into a few categories:
B0033, B0037, B0038, P0020, D0014B0029, B0046P0012, P0013, R0005Return to Discussion of Examples
Some “desirements” identified in CBDC White Paper by the OMG's CBDC WG White Paper Analysis effort call for Purpose-built Hardware.
| Statement No. | Page No. | Statement |
|---|---|---|
| P0025 | 14 | CBDC intermediary would need to verify the identity of a person accessing CBDC |
| D0011 | 19 | Design should generate data about users’ financial transactions in the same ways that commercial bank and nonbank money generates data today |
| D0015 | 20 | Design should include any dedicated infrastructure required to provide resilience to threats such as operational disruptions and cybersecurity risks |
| D0016 | 20 | Design should include offline capabilities to help with the operational resilience of the payment system |
| D0017 | 20 | Design should include digital payments in areas suffering from large disruption, such as natural disasters |
P0025 could require hardware for identification such as Smart Cards or https://www.omgwiki.org/dido/doku.php?id=dido:public:ra:xapend:xapend.a_glossary:r:rsa_secureid which may or may not be Purpose-Built for the CBDC.D0011 could be relevant when there is a network monitoringD0015 if portions of the CBDC are over secure, private networks that are purpose-built for the operations, then they must be resilient to threats, disruptions and cybersecurity threats. D0016, D0017 mean that payment systems need to be able to work autonomously in isolation from the Internet. This highlights the advantage of a Digital Coin versus a Stablecoin.Return to Discussion of Examples
Some “desirements” identified in CBDC White Paper by the OMG's CBDC WG White Paper Analysis effort call for Purpose-built Software.
| Statement No. | Page No. | Statement |
|---|---|---|
| P0025 | 14 | CBDC intermediary would need to verify the identity of a person accessing CBDC |
| R0014 | 13 | Risk of not achieving an appropriate balance between safeguarding the privacy rights of consumers and affording the transparency necessary to deter criminal activity |
| D0002 | 17 | Design should allow the central bank to limit the amount of CBDC an end-user could hold |
| D0003 | 18 | Design should allow a limit on the amount of CBDC an end-user could accumulate over short periods |
| D0011 | 19 | Design should generate data about users’ financial transactions in the same ways that commercial bank and nonbank money generates data today |
| D0013 | 19 | Design should facilitate compliance with a robust set of rules already intended to combat
|
| D0016 | 20 | Design should include offline capabilities to help with the operational resilience of the payment system |
| D0017 | 20 | Design should include digital payments in areas suffering from large disruption, such as natural disasters |
P0025 could require software for identification such as Smart Cards or https://www.omgwiki.org/dido/doku.php?id=dido:public:ra:xapend:xapend.a_glossary:r:rsa_secureid which may or may not be Purpose-Built for the CBDC.R0014 there are https://www.omgwiki.org/dido/doku.php?id=dido:public:ra:xapend:xapend.a_glossary:p:p_p which can be implemented to help protect privacy but still allowing for the surveillance of activities that indicate criminal behavior. There are also Software approaches available that allow for the anonymization of data. D0002, D0003 almost require a centralized system in order to enforce these rules. However, if Digital Dollars are used instead of Stablecoins, the hoarding of the dollars requires a lot of planning on the part of the hoarder (i.e., money in a mattress) D0011, D0013 is very important and is often overlooked by the current Cryptocurrencies and Stablecoin implementations. They are often built from the bottom up rather than from the top down or middle out. This means that many of these projects/products have to discover these rules and try to shoehorn them into their existing efforts. Just like security, many of these can not be “bolted” on post factoD0016, D0017, like the financial and banking rules, is something that needs to be considered very early on in the development of the requirements and architecture rather than addressed post factoReturn to Discussion of Examples
Some “desirements” identified in CBDC White Paper by the OMG's CBDC WG White Paper Analysis effort for Purpose-defined Data.
| Statement No. | Page No. | Statement |
|---|---|---|
| B0051 | 19 | Generate data about users’ financial transactions similarly to the current Commercial Bank1) and Nonbank Money |
| P0004 | 2 | Protect consumer privacy |
| R0014 | 13 | Risk of not achieving an appropriate balance between safeguarding the privacy rights of consumers and affording the transparency necessary to deter criminal activity |
| D0002 | 17 | Design should allow the central bank to limit the amount of CBDC an end-user could hold |
| D0003 | 18 | Design should allow a limit on the amount of CBDC an end-user could accumulate over short periods |
| D0011 | 19 | Design should generate data about users’ financial transactions in the same ways that commercial bank and nonbank money generates data today |
| D0013 | 19 | Design should facilitate compliance with a robust set of rules already intended to combat
|
| D0016 | 20 | Design should include offline capabilities to help with the operational resilience of the payment system |
| D0017 | 20 | Design should include digital payments in areas suffering from large disruption, such as natural disasters |
B0051, D0011, D0011, D0013: most existing blockchain, Stablecoin products are “organic”, evolving from the bottom up and are centered around the concepts of a ledger. Although this is part of banking, there is so much more that is required by law in the US. Many of these rules are not intended just to be administrative roadblocks (i.e., administrivia) but were instituted as a result of some previous problems and help to stabilize and instill confidence in the US financial institutions. Adding “rules” to these products will either degrade the quality and performance of the products or have spotty implementations.P0004 is intended to protect consumer privacy, not just when the Data is at Rest, but also when the Data is in Motion and while it is being used (processed). It is only when all the places where data is used are protected, can there be assurances of consumer privacy. While the traditional concepts of Data-At-Rest and Data-In-Motion are well known and understood, the third category, Data-In-Use, has emerged as equally important. In the past, Data-In-Use was physically protected at physically secured mainframes and Data Centers; however, with distributed computers, especially on Public Networks, there can be no such assurances. As the value of the assets on the network increase, the motivation to “hack” the data while in use increases. The CBDC, as part of the critical infrastructure, will be a prime target.R0014 is about achieving a balance between a consumer's privacy and the transparency required to prevent criminal activity. In the real world, these limits are achieved through the difficulty of using physical money. Storing, transferring, and counting it is a problem. Although cash is anonymous, large amounts of cash trigger examination. D0002, D0003 represent limits on CBDC holdings and the transactions associated with the current system. In many ways, these represent limits established to protect against money laundering. D0016, D0017 like the financial and banking rules, is something that needs to be considered very early on in the development of the requirements and architecture rather than addressed post facto so the correct data can be collected.