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cbdc:public:cbdc_omg:04_doc:20_comments:brp:q01:policy

sub-Q2: Policies

Question

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What additional potential policy considerations of a Central Bank Digital Currency (CBDC) may exist that have not been raised in this paper?

Answer

Governance Overview

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A major risk to the CBDC is the Governance of a very large, complex system. which encompasses:

  • US Legislative laws and regulations
  • CBDC cross US department and agency organizations
  • CBDC international participants
  • CBDC private sector partners
  • Legal policies and procedures for the CBDC itself
  • Hardware
  • Networks
  • Software
  • Data

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.

Examples

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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:

Table 1: Example of mapping a subset of “desirements” identified during the White Paper Analysis conducted by OMG's CBDC WG.
Governance Area OMG Identified “desirements”
Legislation, Laws, and Regulations
P: P0011, P0014, P0015, P0016, P0018, P0019, P0030
External Federal Reserve, US Government Organization
B: B0005, B0006, B0020, B0025, B0026, B0030, B0036, B0046, B0052, B0053
P: P0005, P0006, P0016, P0017, P0023, P0024, P0031
R: R0001, R0005, R0008, R0010, R0011, R0012, R0014, D0013, D0016, D0017
External US Entities
B: B0006, B0009, B0015, B0025, B0041, B0052, P0028, D0009,
Private Sector Parties
B: B0006, B0008, B0025, B0026, B0029, B0033, B0037, B0038, B0044, B0046, B0052, B0053
P: P0005, P0010, P0012, P0013, P0016, P0020, P0021, P0023, P0024
R: R0001, R0005, R0008, R0011, R0012, R0014, R0018, R0020, R0022, R0023
D: D0011, D0012, D0013, D0014, D0017
Purpose-built Hardware
P: P0025
R: R0014
D: D0002, D0003, D0011, D0015, D0016, D0017
Purpose-built Software
P: P0025
R: R0014
D: D0002, D0003, D0011, D0012, D0013, D0016, D0017
Purpose-defined Data
B: B0051
P: P0004
R: R0014
D: D0002, D0003, D0011, D0012, D0013, D0016, D0017
B = Benefit Considerations
P = Policy Considerations
R = Risk Considerations
D = Design Considerations

Discussion of Examples

Legislation, Laws, and Regulations

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Some “desirements” identified in CBDC White Paper by the OMG's CBDC WG's White Paper Analysis effort map to Legislation, Laws, and Regulations.

  • 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.

External Federal Reserve, US Government Organization

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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.

Table 3: White Paper “desirements” associated with US Government organizations external to the Federal Reserve.
Note: The following subset of “desirements” only represents a few that are relevant to External Federal Reserve, US Government Organization found in the White Paper. They are provided to support further discussions.
Statement No. Page No. Statement
B0006 2 Provide broad support from key stakeholders
B0011 7 Make payments:
1. faster
2. cheaper
3. more convenient
4. more accessible
B0052 19 Prevent Financial money laundering crimes
B0053 20 Provide resiliency to threats to existing payment services—including:
1. operational disruptions
2. cybersecurity risks
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.

External US Entities

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Some “desirements” identified in CBDC White Paper by the OMG's CBDC WG White Paper Analysis effort map to External US Government organizations.

Table 4: White Paper “desirements” associated with External US Government organizations.
Note: The following subset of “desirements” only represents a few that are relevant to External US Entities found in the White Paper. They are provided to support further discussions.
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:
1. economic growth
2. enhance global commerce
3. improve international remittances
4. reduce inequality
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.

Private Sector Parties

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Some “desirements” identified in CBDC White Paper by the OMG's CBDC WG White Paper Analysis effort are intended for Private Sector organizations.

Table 5: White Paper “desirements” associated with Private Sector organizations.
Note: The following subset of “desirements” only represents a few that are relevant to Private Sector Parties found in the White Paper. They are provided to support further discussions.
Statement No. Page No. Statement
B0006 2 Provide broad support from key stakeholders
B0029 14 Suport basic purchases of:
1. goods
2. services
3. pay bills
4. pay taxes
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:
1. new access services
2. distribution methods
3. related service offerings
B0046 16 Enable rapid and cost-effective delivery of:
1. wages,
2. tax refunds
3. other federal payments
P0012 7 The firms that operate inter-bank payment services are subject to federal supervision
P0013 7 Systemically important payment firms are subject to
1. heightened supervision
2. regulation
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:
1. financial stability
2. payment system integrity
3. other Risks
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:

  • Those participating in the building and support of the CBDC infrastructure: B0033, B0037, B0038, P0020, D0014
  • Those participating in the use of the CBDC: B0029, B0046
  • Those affected by the use of CBDC: P0012, P0013, R0005

Purpose-built Hardware

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Some “desirements” identified in CBDC White Paper by the OMG's CBDC WG White Paper Analysis effort call for Purpose-built Hardware.

Purpose-built Software

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Some “desirements” identified in CBDC White Paper by the OMG's CBDC WG White Paper Analysis effort call for Purpose-built Software.

  • 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 facto
  • 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

Purpose-defined Data

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Some “desirements” identified in CBDC White Paper by the OMG's CBDC WG White Paper Analysis effort for Purpose-defined Data.

  • 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.
1)
Commercial banks include banks licensed either by federal or state banking agencies, credit unions, and thrifts from the White Paper&.
cbdc/public/cbdc_omg/04_doc/20_comments/brp/q01/policy.txt · Last modified: 2022/06/17 18:28 by terrance
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