The Bank of Canada was one of the first sets of central banks to begin in-depth research on CBDC.
An analyst at the Bank of Canada, Sriram Darbha, has identified retail CBDC archetypes in theory. After thorough research, the analytic note highlighted five patterns that recur in retail CBDC designs. The study is based on information organization, and it details the comparison between software and real CBDCs. The researcher also mentioned the practical implication of the findings for retail payment systems.
Canadian Central Bank Identifies Retail CBDC
The Bank of Canada analysts classified the patterns as archetypes, noting that they were characterized by information about the maintenance and update of its ownership and supply. The five CBDC archetypes are; Centralized, Leaderless, Macro-partitioned, Micro-partitioned, and Direct. Furthermore, the researcher ranked the CBDC archetypes by eight criteria. They are privacy, compliance, visibility, scalability, resilience, extensibility, online payments, and offline payments. According to the ranking, privacy was the most challenging factor, and direct archetypes got the highest score for it.
“These archetypes can be combined and are general enough to collectively cover a wide range of possible CBDC designs. We anticipate that some CBDC system designs will closely align with one archetype, some will be variations of an archetype, and others will combine aspects of multiple archetypes.”
Darbha explained that the archetypes allow central banks to state their policy goals. Also, the banks can “focus their efforts on classes of systems that fit those archetypes.” Furthermore, the author took time to expatiate each CBDC archetype, starting with centralized. This possesses a feature that makes the entire system state of being within the trust zone of an entity and be controlled by the same entity. Practically, a CBDC system would replicate the state and not be deployed as a single instance. Additionally, the Bank of Canada staff noted that a different way to replicate the state is to organize is to be leaderless.
More on Bank of Canadian’s CNBC Research
Furthermore, the system state can be partitioned, and each partition would differ from the other and could also contain a private state. On the other hand, transacting partitions directly provides their own insights under the CBDC direct archetype.
“The direct systems, only the parties involved in the transaction record the settlement. The direct archetype therefore provides users with the strongest privacy. Even if such a system requires users to periodically share data with a system entity, users may be able to influence their privacy through behavior for example, by remaining disconnected for extended periods.”
Notably, the Bank of Canada was one of the first sets of central banks to begin in-depth research on CBDC. The financial institution has been publishing papers on central bank digital currencies. In addition, the Bank of Canada also partnered with universities; McGill, the University of Calgary, the University of Toronto & York University.
Ibukun is a crypto/finance writer interested in passing relevant information, using non-complex words to reach all kinds of audience.
Apart from writing, she likes to see movies, cook, and explore restaurants in the city of Lagos, where she resides.
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