The Bank for International Settlements (BIS) Consultative Group on Innovation and the Digital Economy proposed a retail central bank digital currency (CBDC) architecture that protects user privacy while adhering to regulatory requirements such as KYC and AML compliance.
In its recent report, the BIS Consultative Group on Innovation and the Digital Economy (CGIDE) outlined a hybrid retail CBDC model. Under this approach, central banks issue and manage digital currencies, while consumer-facing services are provided by commercial entities.
The report suggests two access models: account-based and token-based. The proposed architecture separates transaction data from users’ identifying information, addressing one of the primary challenges for CBDC developers, i.e., achieving regulatory compliance while safeguarding personal data.
The CGIDE also examines data storage and management options, ranging from centralized databases to distributed ledgers (DLT). Additionally, the report highlights the importance of programmability and smart contracts to enhance the efficiency of payment systems. The architecture supports tokenization, which aims to bridge traditional and decentralized financial systems, improving overall market liquidity.
The BIS representatives emphasize that the proposed framework is one potential approach to retail CBDC design and can be adapted to suit the regulatory and policy objectives of individual jurisdictions. Central banks and other stakeholders are invited to contribute to further research and discussions.
Despite ongoing criticism of CBDCs in 2024, global efforts in this area continued. Central banks are also exploring alternatives to CBDCs in the context of enhancing cross-border payment systems.
