Fed paper looks at different CBDC types

A central bank-issued digital currency’s possible advantages over current payment systems could depend on what archetype is selected, research published by the Federal Reserve finds.

“Central banks will need to decide which features a CBDC should improve upon and choose the archetype that can best achieve these goals,” Paul Wong and Jesse Maniff say.

Wong and Maniff compare “cash equivalent”, “account-based” and “hybrid” CBDCs against cash and real-time gross settlement (RTGS) systems. They use seven categories, including accessibility, anonymity, bearer instrumentality, independence, operational efficiency, programmability and service availability.

A “cash equivalent” CBDC would probably be more expensive than an RTGS system but cheaper than cash operations, they find. An “account-based” CBDC could be less expensive to run than an RTGS system and could also give users greater anonymity over their transactions, they say.

One key benefit of adopting a “hybrid” CBDC is that it has better programmability than a RTGS system, the authors argue. “A CBDC could allow for smart contracts, whereas an RTGS system would be limited to API [application programming interface] programmability, which is not built into the platform itself,” they say.

“Though a CBDC will never be able to fully replicate all characteristics of cash and RTGS simultaneously, in certain circumstances, it has the potential to be an improvement over both existing modes of payment.”