Source: cryptoslate
Compiled by: Blockchain Knight
The Bank for International Settlements (BIS) has published a comprehensive framework for designing retail central bank digital currencies (CBDCs), emphasizing a hybrid model that combines central bank control and private sector collaboration.
The report, developed by the Committee on Innovations and Digital Economies (CGIDE), provides a roadmap for central banks in the Americas and globally to explore this evolving financial tool.
The proposed hybrid model allows the central bank to retain control over CBDC issuance and infrastructure, while delegating user-facing responsibilities to private intermediary institutions.
These intermediaries will handle functions such as KYC verification, wallet management, and transaction facilitation.
This model ensures efficiency and scalability, while addressing user privacy and compliance-related issues.
The framework includes four core processes: user registration, CBDC issuance (cash in), CBDC withdrawal (cash out), and on-ledger transfers.
Notably, the system supports a tiered KYC mechanism, providing basic wallets for low-value transactions with minimal identity requirements, and advanced wallets for high-value transactions that meet stricter regulatory standards.
Offline payment functionality is a key feature of the proposal, aimed at expanding access for the underserved and unbanked population.
The report states: "The hybrid model bridges the gap between centralization and decentralization, providing resilience, accessibility, and stronger privacy protection."
The BIS report highlights the advanced functionalities that CBDCs can bring to the financial ecosystem, including programmability through smart contracts, asset tokenization, and seamless integration with DeFi.
The report states that these features can enhance liquidity, automate transactions, and create new financial arrangements, positioning CBDCs as a foundational tool for the modern economy.
For example, tokenized CBDCs can simplify financial settlements through atomic swaps, eliminating the need for multi-step reconciliation processes. They can also facilitate cross-border payments, reducing costs and processing times, while promoting greater competition and efficiency.
The report emphasizes that a programmable CBDC platform can transform supply chain financing and support innovations such as emergency payments.
The report draws on global experiences, mentioning Jamaica's JAM-DEX, China's digital renminbi, and Peru's offline pilot project for rural areas.
It also addresses technical challenges, including interoperability with existing payment systems, ensuring privacy without compromising compliance, and mitigating cyber threats.
The Bank for International Settlements stresses that this proposal is a flexible framework aimed at fostering dialogue and feedback among stakeholders.
