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4.6 International Considerations


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The Bank for International Settlements (BIS) has produced a paper on Central Bank Digital Currencies discussing the foundational principles and core features of a CBDC. The following is an excerpt from the Executive Summary:1)

CBDC issuance and design are sovereign decisions to be made by each jurisdiction. This report is not about if or when to issue a CBDC. Central banks will make that decision for their jurisdictions (in consultation with governments and stakeholders). None of the central banks contributing to this report have reached a decision on whether to issue a CBDC. Instead, this report advances the foundational international work by outlining common principles and the key features a CBDC and supporting infrastructure would need in order to contribute to central bank public policy objectives.
The principles emphasize that:
(i) a central bank should not compromise monetary or financial stability by issuing a CBDC;
(ii) a CBDC would need to coexist with and complement existing forms of money; and
(iii) a CBDC should promote innovation and efficiency. The possible adverse impact of a CBDC on bank funding and financial intermediation, including the potential for destabilizing runs into central bank money, has been a concern of central banks.
Any decision to launch a CBDC would depend on an informed judgment that these risks can be managed, likely through some combination of safeguards incorporated in the design of a CBDC and financial system policies more generally. Understanding the potential market structure effects of CBDC, their implications for financial stability, and any potential mitigants is a further area of work for this group.

The Federal Reserve has suggested “Desirements”2) in a White Paper named Money, and Payments: The U.S. Dollar in the Age of Digital Transformation. These “Desirements” were captured and summarized in a White Paper Analysis conducted by the Object Management Group's CBDC WG. Ultimately, these “Desirements” need to be incorporated into a CBDC Data Strategy following the guidelines set by the U.S. government for government entities to develop a Federal Data Strategy.

The Federal Reserve has suggested a “Desirement” have the CBDC used internationally and as a mechanism to transfer funds across borders. These “Desirements” need to be added to a Federal Reserve CBDC Data Strategy. For more information, the OMG DIDO-RA provides a discussion on Federal Data Strategy. The Federal Reserve and the implementation of the CBDC should formulate their own Federal Data Strategy. The Data Strategy should also address matters covered in Section 4.4 National Privacy Considerations.

Since the Federal Reserve is striving for a CBDC with international appeal, it also needs to develop a Data Strategy, covering Data Governance, Compliance and Regulation. Table 1 provides some insight into data governance the CBDC needs as part of a Data Strategy.

Table 1: Governance issues associated with “data storage”
Data Residency

Data Residency is the set of issues and practices related to the location of data and metadata, the movement of (meta)data across geographies and jurisdictions, and the protection of that (meta)data against unintended access and other location-related risks3)

Data Sovereignty

Data Sovereignty is the concept that information which has been converted and stored in binary digital form is subject to the laws of the country in which it is located.

Data Localization

Data Localization is the act of storing data on any device that is physically present within the borders of a specific country where the data was generated.

‡ Note: Data Localization and Data Residency are sometimes mistakenly used interchangeably. On its own, Data Residency refers to the place where data is stored. Data Residency requirements often compel organizations to change where the data resides. Data Localization is the action of complying with Data Residency requirements.4)

Governance Issues Associated with Data Storage


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The following “Desirements” are from the White Paper as identified by the Object Management Group's CBDC WG report called White Paper Analysis:

Table 2: Example of mapping a subset of requirements identified during the White Paper Analysis conducted by the OMG's CBDC WG
Category Desirements
Benefits B0009, B0015, B0035, B0036, B0041, B0052
Policies P0004, P0005, P0006, P0012, P0023, P0024, P0028
Risks R0014
Design D0013, D0015, D0016, D0017
Note: B = Benefit, P = Policy, R = Requirement, D = Design.

Example Discussion

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Table 3: “Desirements” identified in the White Paper that have potential international impacts.
Statement No. Statement Comment
B0009 Provide faster and cheaper payments (including cross-border payments)

There is a lot of promise coming from the Blockchain world vis-a-vis decentralization and transactions per second, To a large extent this is driving the Stablecoin Desirements such as: B0016, B0017, P0015, P0016, R0022. These promises of a a global and international game changer has performance and cost issues.

Figure 1: Cryptocurrencies Transactions Speeds compared to Visa and Paypal5)
For now, any time a new blockchain starts making promises about “beating Visa’s 24,000 tps”, be skeptical and examine the fine print. IOTA’s meant to be fast and scalable, but like a kid who’s terrified of removing the stabilizers from their bike, it still doesn’t function without its coordinator. Hashgraph is also meant to be fast, but it comes with threats to sue anyone who tries to fork it and any blockchain that can be sued isn’t a decentralized network. Come to think of it, it’s more like Visa.6)

In addition to the speed issues, there are huge costs associated with consensus. See the OMG DIDO-RA discussion on Consensus Platforms.

Note: However, this does not mean the Federal Reserve should not continue to have Research Development Test & Evaluation (RDT&E) Funding into Blockchains or Stablecoin.
Note: See: B0041.
B0015 Reduce cross-border costs to benefit:
1. NO economic growth
2. enhance global commerce
3. improve international remittances
4. NO reduce inequality

The U.S. Dollar is already an international global currency.

According to the International Monetary Fund, the U.S. dollar is the most popular [currency]. As of the fourth quarter of 2019, it makes up over 60% of all known central bank foreign exchange reserves. That makes it the de facto global currency, even though it doesn't hold an official title. 7)

However, even though the U.S. Dollar is the de facto world currency, it is partially because it is perceived as a neutral, unbiased, well-managed, and transparent commodity. If the CBDC were to change the rules to make it less well-managed, neutral, unbiased, and transparent there will be serious challenges to the U.S. Dollar. Part of the explanation for Bitcoins' adoption was that transactions were perceived to be beyond the purview of the U.S. government, in specific, but other governments as well.

Despite trillions of dollars in foreign debt and continuous large deficit spending, the United States still holds global trust and confidence in its ability to pay its obligations. For this reason, the U.S. dollar remains the strongest world currency. It may continue to be the top global currency in the years to come.
The dollar’s current number one status is under contention though. Countries such as China and Russia feel a new one-world currency, one not backed by any one nation, is overdue in this increasingly integrated global economy.(

Kimberly Amadeo, Why the US Dollar Is the Global Currency, The Balance 16 March 2022, Accessed: 10 April 2022, ))

Part of the reservation about the U.S. Dollar is also attributable to the Snowden revelation. See: Data Sovereignty and MacAskill and Dance.8)

B0035 Streamline cross-border payments by using:
1. NO new technologies
2. introducing simplified distribution channels
3. creating additional opportunities for cross-jurisdictional collaboration and interoperability

See B0015.

B0036 Preserve the dominant international role of the U.S. dollar

See B0015.

B0041 Support streamlining cross-border payments

The Bank for International Settlements (BIS) has produced a paper for the G20 on Central bank digital currencies for cross-border payments9)

Cross-border payments with CBDCs can be envisioned in two fundamentally different ways:
1. A retail CBDC of a given jurisdiction becomes available to anybody inside and outside of that jurisdiction, with no specific coordination between the issuing central banks
2. Access and settlement arrangements are established among different retail and/or wholesale CBDCs, built on strong cooperation among central banks
In the first scenario of international use, the CBDC, being digital, could be designed so that it faces no constraints on where and by whom it is used. If the design allows for anonymous payments like cash, it would by default be accessible to foreign residents. In practice, however, relatively few central banks are considering fully anonymous systems (Auer, Cornelli, and Frost (2020)). Alternatively, and in contrast to cash, a CBDC could be designed so as to be subject to certain restrictions on cross-border use imposed by the issuing central bank.
In the second scenario, coordination and cooperation among central banks would favor less disruptive approaches. This could happen either by allowing foreigners from partnering jurisdictions to access the domestic CBDC solution or by means of multi-CBDC (CBD) arrangements.12 These are coordinated design frameworks including technological, market structure, and legal aspects, aiming to facilitate cross-border interoperability of multiple CBDCs from different jurisdictions.
B0042 Preserve the dominant international role of the U.S. dollar

See B0015.

B0052 Prevent Financial money laundering crimes

There is already a rich legal framework in place to cope with Money Laundering within the U.S.; many of these can help prevent money laundering across U.S. borders. One example is the US Patriot Act, Title III: Anti-money-laundering to prevent terrorism of 2001, especially the

1. The First Subtitle deals primarily with strengthening banking rules against money laundering, especially on the international stage
2. The Third Subtitle deals with currency smuggling and counterfeiting, including quadrupling the maximum penalty for counterfeiting foreign currency.

Also, 18 U.S. Code § 1956 - Laundering of monetary instruments has provisions for international situations:

3. Unlawful activity, certain offenses against foreign nations
4. The defendant knew that the property involved was the proceeds of any felony under State, Federal or foreign law
5. Defines “financial transactions” to include interstate or foreign commerce
Note: These laws and regulations need to be reviewed when a U.S. CBDC design is finally ready for testing to ensure the framework is still adequate to protect criminal activities and that CBDC does not open loopholes and backdoors.
P0004 Protect consumer privacy

Internationally, a major method of protecting consumer privacy is referred to as Data Localization. This section includes examples from Russia, China, India, European Union, and Brazil.

Data Localization policies classification 10) is summarized below:

Local-only Storing, Transmission, and Processing: This generally means an obligation to locally manage data or a prohibition of international data transfers. This is the strictest type of localization policy and is more likely to be descriptive of nations seeking broader control over citizen activities.

Local Copy Required: Companies are required to keep a copy of data in local servers or data centers. This allows for easier access to this data for regulation and law enforcement purposes, i.e., it is generally easier for local law enforcement agencies to access data stored locally than it is for them to access data stored in another jurisdiction.

Narrower, conditional restrictions: Transfers of data outside the country are only permitted if certain conditions are met by the transferee and/or by the recipient country.

P0005 Protect against criminal activity

There is already a rich legal framework within the U.S. to protect against criminal activity, which includes international activities (see the Details of National Security Considerations). Many of these laws and regulations are already well established and operational on the international level.

Some examples:

Human Trafficking: Intelligence Reform and Terrorism Prevention Act of 2004 The Intelligence Reform and Terrorism Prevention Act, section 7202 established the Human Smuggling and Trafficking Center to achieve greater integration and overall effectiveness in the U.S. government's enforcement and other response efforts, and to work with foreign governments to address the separate but related issues of alien smuggling, trafficking in persons, and criminal support of clandestine terrorist travel.

Drug Trafficking: 18 U.S. Code § 1952 - Interstate and foreign travel or transportation in aid of racketeering enterprises Five years maximum for traveling or using the mail or instruments of interstate commerce (telephone/internet) with intent to facilitate drug trafficking.

Table 3: Summary of the number of laws and regulations covering National Security Considerations.
National Security Consideration No. of Laws and Regulations
Human Trafficking 14
Drug Trafficking 9
Corruption 10
Money Laundering 11
Total 44
Note: These laws and regulations need to be reviewed when a U.S. CBDC design is finally ready for testing to ensure the framework is still adequate to protect criminal activities and that CBDC does not open loopholes and backdoors
P0006 Garner broad support from key stakeholders

See 4.1 Stakeholders. The primary international stakeholders in the CBDC effort are identified in non-U.S. Federal Government Oversight Authorities. This is a minimum set and could include more countries and specific agencies within these countries.

P0012 The firms that operate interbank payment services are subject to federal supervision

This is highly dependent on the Currency Model or mix of currency models chosen to implement the U.S. CBDC.

Existing intermediaries must already follow:

1. Know Your Customer (KYC)
2. Customer Due Diligence

As well as take steps to prevent Money Laundering, such as:

1. Deposit of illicit funds into the financial system
2. Transactions designed to conceal the illicit origin of the funds, known as “layering”
3. Use of laundered funds to acquire real estate, financial instruments, or commercial investments

U.S. Federal law requires a person to report cash transactions of more than \$10,000 by filing IRS Form 8300 PDF, Report of Cash Payments Over \$10,000 received in a Trade or Business. 11)

Note: These laws and regulations need to be reviewed when a U.S. CBDC design is finally ready for testing to ensure the framework is still adequate to protect criminal activities and that CBDC does not open loopholes and backdoors. This means that all new intermediaries are subject to the same rules.
P0023 CBDC would need to be readily transferable between customers of different intermediaries

This requires international agreement on the details of what constitutes a transfer, the rules of the transfers, limits or restrictions on the transfers, etc. Although there are already agreements using the existing systems, these are often too slow for modern expectations.

Even though streamlining transfer processing using technologies such as Blockchain is promising (in order to reduce the time it takes to do a transfer) this should in no way mean that the rules can be ignored.

P0024 CBDC would need to comply with the U.S. robust rules

Most of the international agreements have to do with the detection and prevention of National Security which is a broad, extensive topic that requires an understanding of the U.S. Laws and Regulations, as well as, international treaties and agreements. Within the context of the CBDC, criminal activity can be one or more of the following:

1. Human Trafficking
2. Drug Trafficking
3. Corruption
4. Money Laundering
P0028 Require significant international coordination to address issues such as:
1. common standards
2. infrastructure,
3. the types of intermediaries able to access any new infrastructure,
4. legal frameworks
5. preventing illicit transactions
6. the cost and timing of implementation
Bank for International Settlements (BIS), Report no 1, Central Bank Digital Currencies - foundational principles and core features, ISBN: 978-92-9259-427-5 (online) 2020, Accessed: 8 April 2022,
Desirement is a blended word combining the word Desire and Requirement. Desirement is something that is desired, but not absolutely required and is often used to caption the capabilities of a product or system before it has reached the formal requirements phase. Source: Desirement
Cloud Standards Customer Council and the Object Management Group, Data Residency Challenges, May 2017, Accessed: 8 April 2022,
Cloudfare, What is data localization?, Accessed: 8 April 2022,
5), Transactions Speeds: How Do Cryptocurrencies Stack Up To Visa or PayPal?, Accessed: 15 May 2022,
Kai Sedwick, No, Visa Doesn’t Handle 24,000 TPS and Neither Does Your Pet Blockchain, April 10, 2022, Accessed 10 April 2022,
Kimberly Amadeo, Why the US Dollar Is the Global Currency, The Balance 16 March 2022, Accessed: 10 April 2022,
Ewen MacAskill and Gabriel Dance, The Guardian, NSA Files: Decided - What the revelations mean for you, 1 November 2013, Accessed: 9 April 2022,
Bank for International Settlements (BIS) - Committee on Payments and Market Instructions, Central bank digital currencies for cross-border payments, July 2021, Accessed: 10 April 2022,
Emily Wu, Harvard Kennedy School - Belfer Center - For Science and International Affairs, Sovereignty and Data Localization, July 2021, Accessed: 9 April 2022,
Internal Revenue Service, Cash payment report helps government combat money laundering, Accessed 2 March 2022,
cbdc/public/cbdc_omg/04_doc/15_common/50_international/start.txt · Last modified: 2022/06/17 18:12 by terrance
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