Central Bank Digital Currency (CBDC): Best Practice and Technical Considerations
20 September 2022
Best Practice & Implementation Considerations
•Researcher / Data Scientist
•Associate Professor, School of Economic and Business, Telkom University
•Chief and Founder of Lab. Social Computing & Big Data
•Chairman & Founder Indonesian Data Scientist Society (AIDI)
•Honorary Member of Asosiasi Blockchain Indonesia (ABI)
Research Field :
Social Computing, Social Network, Complex Network / Network Science, Computational Social Science, Data Analytics, Big Data, Data
Mining, Graph Theory, Blockchain Technology, Disruptive Innovation / Disruptive Economy, ICT Entrepreneurial Business, Data /
S1 : Mathematics - ITB, Topic: Statistics
S2 : Informatics - Universite Picardie, France, Topic: Information System,
S3 : Electro and Informatics - ITB, Topic: Social Network, and Big Data
A CBDC is a digital form of CB money. A legal tender created and backed by a CB. It represents a claim against
the CB and not against a commercial bank or a Payment Service Provider (PSP). CBDC is managed on a digital
ledger (which can be a blockchain or not), expediting and increasing the security of payments between banks,
institutions, and individuals.
BIS recent studies state >70% of institutions are actively researching and developing CBDC proofs of concept.
• Digital assets. CBDCs are digital assets. Accounted for in a digital ledger (distributed or not) acts as the single source of truth.
• Central bank backed. CBDC represents claims against the CB, just as banknotes do.
• Central bank controlled. The supply of CBDC is fully controlled and determined by the CB.
What Is Central Bank Digital Currency?
3 aspects that de
ne a CBDC:
Central Bank Digital Currency
CBDC is an instrument and blockchain is an infrastructure.
combining the two – a new instrument on a new infrastructure – introduces novel solutions to
some long standing problems in
Central Bank-issued Digital Currency is a digital twin of cash. A binary representation of the real world notes/
cash. Since it is digital, it could link to a digital identity and held in a wallet.
CBDC is also a novel form of money. An addition to the category of money known as M0 (the monetary base), which
includes cash and reserves. Like other forms of money in that category, it is also legal tender and a claim on the CB.
In traditional economics, M0 represents central bank-issued money, like cash and CB depository accounts. CBDC
is included in M0, or will be once it is issued.
CBDC is not
• mined/minted by unknown parties. And it is not pegged to any real-world assets
• a payment but a means for payment.
• infrastructure and does not pose any threat to the incumbents of the
Central Bank Digital Currency
3 Design Choices (Design Considerations)
Who issued CBDC
Direct model – designed for disintermediation (CB issue directly to end customers). 1. disrupt the current
nancial system. 2. put additional burden on the CB to manage customer on-boarding, KYC, AML checks, etc
Indirect model – banks re-issue CB money and banks execute the function of customer on-boarding
including AML compliance. 1. the drawback is the risk to end customers. Like bank deposits, end customers will not be
able to claim 100% of their entire CBDC holdings as it is co-mingled with the bank’s balance sheet.
Hybrid model – enhances the current intermediation model by segregating the risk (or balance sheet)
nancial institutions from the CBDC holdings of end users. 1. the end customer CBDC holdings are not tied to the
bank’s balance sheet, so it is 100% portable (and 100% claimable as a legal tender). 2. the hybrid model introduces an important
innovation by allowing the CB to move CBDC holdings of end users if a bank is in distress.
How is CBDC Distributed
Single tier set up – No hierarchy of distribution of CBDCs. the CB issues DCs to all its users –
institutions and citizens (upon doing the KYC and AML checks).
Two-tier set up – A hierarchy of distribution (the preference of most CB). The CBs issue DCs to commercial
banks, which in turn distribute them to consumers and businesses.
In What Form CBDC Held
Token-based holders - each DC is represented as a token with speci
c denomination, mostly 1:1 with
cash. It has the cash DNA, means a transfer from one party to another does not require settlement or any reconciliation (instant
Account based – each user of DC holds an account with the CB or alternatively with commercial banks in a
two-tier distribution model. An account-based model may ease AML and KYC compliance but can be a large overhead for CBs in
a single tier model.
Central Bank Digital Currency
• Technological e
intermediaries, real time transfers and
payments, settlement optimization.
• Financial inclusion: allowing any citizen to
be provided with a free or low-cost basic bank
• Preventing illicit activity: keep track of the
exact location of every unit of the currency:
advantage for tax collection & combatting
• and many more …
• As a move to responds against growing decentralized
cryptocurrency adoption (e
• CB still in control of their monetary policies
Central Bank Digital Currency
Ripple CBDC Whitepaper
Despite the many bene
ts of CBDCs, most CBs are understandably cautious about pursuing real-world initiatives. Everything, from how
people pay bills and buy groceries to how businesses transact and governments are run, depends on a stable
CBDC initiatives raise many challenges for CBs, who must balance the desire for transformation with the need to maintain stability on a global scale.
The Need for Control Versus Desire for Innovation
Most existing digital assets are based on decentralized blockchains where every transaction is validated by a public network of thousands of validators.
CBs will not be willing to relinquish control to a completely distributed model, as the need to direct and in
uence the economies through currency
management. While a fully centralized model would provide the required control, CBs would miss out on innovations like programmable money and
smart contracts that blockchain technology enables. It would also reduce the ability of private sector players to access and collaborate with CBDCs.
In addition, CBs are typically focusing CBDC approaches, solutions and technologies on achieving speci
c domestic goals. However, many
stakeholders interested in using CBDCs have other needs as well as global requirements. If CBs do not enable the broad access, enhanced native
functionality and interoperability that allow their currencies to be adaptive and scalable, they risk losing control of the infrastructure for global
"If [CBDCs] are cheaper, faster, more secure for users, we should explore it. If it's
going to contribute to better monetary sovereignty, better autonomy, we should
explore it. If it's going to facilitate cross-border payments, we should explore it."
Christine Lagarde, President of the European Central Bank
Consumers attitude to CBDC: Considerations for policy-maker, Digital Monetary Institute, 2021
What features of a CBDC would be most
important to you? Select three.
Have you heard about CBDCs or a digital euro/
In which of the following situations would you
consider using a CBDC?
If there were a CBDC in
your country, how likely
would you be to use it?
What payment methods might
you use CBDC instead of?
1 2 3
CBDC Technology Considerations
CBDC Critical Technical
Considerations : (before deployment)
• Strong cybersecurity, technical stability and
Technical failure, loss of user funds, breach of
privacy, breach of con
dential data, CB
• Sound technical governance
Network & infrastructure management, data
hosting, privileges of law enforcement, safe and
reliable custody, compatibility with existing legal
framework, abilities to audit transaction, upgrade
ware to remain complaints to the evolving
exibility to update so
the future needs.
Objective Notes Technical Considerations
to CB Money
In jurisdictions where households
and businesses no longer have
access to risk-free CB money. A
CBDC could act like a “digital
- “Cash-like” features, such as wide acceptance and convenience, instant settlement, continuous 24/7/365
availability and o
- Compatibility with prevalent PoS hardware to stimulate adoption and merchant acceptance. Policy-
makers may consider subsidizing merchant acquisition of necessary technology upgrades.
- Privacy Oriented.
Policy-makers should “meet users
where they are”, by providing CBDC
in a way that works with the tools
and technology already widely
available and accessible to citizens.
- Low cost
- CB Roles: provide CBDC devices/apps for free; subsidized speci
c costs(data); partnership to provide
ordable to users.
- Accessibility and Convenience: (meets users where they are)
- CB Roles: service availability on multiple device; apps of popular apps store;UI/UX aspect; able to
perform on critical conditions (low connection).
or Cross Border)
The presence of privacy-enhancing
techniques to mask end-user
transaction details can interrupt
ciency, as they may involve high
computational requirements that
slow down transactions (Technical
for this policy goals).
- Cross Border Payment E
- Open access to foreign entities to hold account/transact in CBDC; allow domestic citizen to hold
accounts/transact in another country CBDC; allow transaction between domestic and foreign CBDC
- Additional Considerations
- Continuous 24/7/365 functionality with proven operational resilience.
- Instant/near instant
nal transaction settlement
- High transaction throughput and scalability
- High interoperability
A technically robust CBDC system
support payment system resilience
by serving as a primary, back-up or
additional payment method, if
access to cash is very low.
- Very strong cybersecurity standards and features.
- Data and hardware redundancy; continuous data syncing.
- Very strong anti-counterfeiting measures.
- Continuous service and availability.
- Interoperability with relevant payment systems.
- Resilience of any interdependency or integration with other system.
Objective Notes Technical Considerations
Risk Mitigation of
To improve CBDCs likelihood
adoption and provide strong value
proposition, the CB consider should
understand user’s perspective, by
taking a user centric design approach
to develop CBDC
- Very low or no cost.
- Wide CBDC accessibility, including to citizens who can use various technology.
- For convenience, CBDC should be employable in various payment scenarios.
- Functionality to pay interest to CBDC account, for the purpose of stimulating adoption.
- High transaction capacity and scalability.
- Perceived to be trustworthy
Key considerations for CBDC issued
in pursuit of this policy goal are those
that make the CBDC competitive for
payments and deposits.
- Low cost to users
- High usability and accessibility
- High convenience, including interoperability with relevant payment system and widespread acceptance
- Strong reliability, stability, and security to increase trust.
- Value added capabilities and features to compete with existing payment and deposit services.
- Ability to pay a positive interest rate.
CBDC might be able to support
monetary policy implementation.
Most economists have not expressed
much conviction in this opportunity,
owing to limitations or policy
- Interest-bearing CBDC to enable a direct mechanism for policy rate changes.
- Breaking through e
ective lower bound in nominal interest rates. Replace physical cash if its unavailable:
- Capable of having positive and negative interest rate.
- Easily accessible and widely held among households and
- To increase wider adoption, policy maker can consider enacting government identity programs and/
nancial and digital education and literacy campaign.
CBDC employ for
scal transfers to
rms, such as relief or
stimulus payments. It is easier when
there is widespread adoption of
CBDC. The transfer payments could
also be “programmable” on certain
– Requirement for a very high or complete rate of adoption of CBDC accounts.
– Blurring of lines between
scal and monetary policy, if the programme were overseen by the monetary
– Lack of clarity over the bene
ts of using CBDC rather than providing stimulus payments through commercial
Auer & Bohme, “ The technology of retail central bank digital currency”, 2020
Retail CBDC architectures and fully backed alternatives
Cash vs electronic money in today’s two-tier monetary system
Auer & Bohme, “ The technology of retail central bank digital currency”, 2020
Conventional or DLT based Infrastructure?
Conventional and DLT-based infrastructures store data multiple times and in physically
separate locations. The main di
erence between them lies in how data are updated.
In conventional databases, resilience is achieved by storing data over multiple physical nodes,
which are controlled by one authoritative entity – the top node of a hierarchy.
In DLT-based systems, the ledger is jointly managed by di
erent entities in a decentralised
manner. Consequently, each update of the ledger has to be synchronized between all nodes
(“consensus mechanisms”). It involves broadcasting and awaiting replies on multiple messages
before a transaction can be added to
The consensus mechanism become the overhead and reason why DLTs have lower transaction
throughput than conventional architectures. Speci
cally, these limits imply that current DLT
could not be used for the direct CBDC except in very small jurisdictions, given the probable
volume of data throughput. However, DLT could be used for the indirect CBDC architecture,
as the number of transactions in many wholesale payment systems is comparable with that
handled by existing blockchain platforms, as also demonstrated in several wholesale.
In resilience aspect, neither one has a clear-cut advantage. The vulnerabilities are simply
erent. The key vulnerability of a conventional architecture is the failure of the top node, for
example via a targeted hacking attack. While, in the DLT is the consensus mechanism, which
may be put under pressure, for example, by a denial-of-service type of attack.
1. A token-based system would ensure universal access – anybody can obtain a digital
signature – it would o
er good privacy by default. It would also allow the CBDC to
interface with communication protocols (the basis for micropayments in the IoT).
2.The downsides are severe (need the safeguard)
1. The high risk of losing funds if end users fail to keep their private key secret.
2. The challenges to design an e
ective AML/CFT framework for such a system.
Law enforcement authorities would run into di
culties when seeking to
identify claim owners or follow money
ows, just as with cash or bearer
3.The focus of privacy dimension goes far beyond whether the system is based on
accounts or digital tokens. Transaction-level
nancial data reveal sensitive
personal data. Hence, two aspects of privacy by default are crucial for the design
of a CBDC:
1. The amount of personal information transaction partners learn about each
other when the system is operating normally.
2.The risk of large-scale breaches of data held by the system operator or
4. A CBDC lets merchants collect and link payment data to customer pro
transforms the very nature of payments. Hence, a CBDC should preserve its users’
5.Depending on the involvement of intermediaries and the information they receive,
technical safeguards for data protection need to be complemented by a legal
framework restricting data collection by front-end applications.
Once the CBDC’s architecture and infrastructure have been chosen, the question arises of how and to whom one should give access (the third layer of the CBDC pyramid)
rst option : tie ownership to an identity. Claims are represented in a database that records the value along with a
reference to the identity, just as in a bank account. The drawbacks in the case of CBDCs is it depends on “strong”
identities for all account holders – schemes that map each individual to one and only one identi
er across the entire
payment system. Such schemes can present a challenge in some jurisdictions, thus impairing universal access.
The second option : the CB honours claims solely when the CBDC user demonstrates knowledge of an encrypted
value – an option sometimes referred to as digital tokens. One example is when the secret part of a public-private key
pair is used to sign a message.
★CBDC Status: current (or historic):
Cancelled: Countries that cancelled or decommissioned a CBDC.
Research: Countries that published multiple research reports about CBDC and started experimenting.
Proof of Concept: Countries that are in an advanced research stage and have published a CBDC proof of concept.
Pilot: Countries piloting CBDC, e.g., for domestic interbank or international use cases, in a real environment with a limited number of parties.
Development: Countries that already launched a small-scale pilot but currently prepare their CBDC for a full-scale launch.
Launched: Countries that o
cially launched a CBDC.
★Retail/Wholesale: a CBDC can be either wholesale (e.g. for interbank transactions only) or retail (intended to be used by the end user).
★Structure: a CBDC can be either stored as a token or as an account.
★Technology: name of a technological platform behind a CBDC.
★Programmability: does a CBDC support programmable logic (e.g. smart contracts).
★Interoperability: does a CBDC support integration with other digital currencies.
★Governance structure: who has rights to control a CBDC (can be a central bank, a consortium, etc.)
★Centralization: is a CBDC based on centralized or decentralized principles.
★DLT / non-DLT: is a CBDC built on top of distributed ledger technology (DLT).
★Main motivation/goals of the CBDC: reason why a certain central bank or government has started a CBDC project.
★Remuneration: is a CBDC interest-bearing or non interest-bearing.
★International access: does a CBDC allow to be accessed from outside a country it has been issued by.
Technology Description Promotor
Digital Symmetric Core Currency Cryptography (DSC3) technology to enable central banks to issue, control, and
at currency that is then distributed through commercial banks and payment service providers.
Ethereum is the community-run technology powering the cryptocurrency ether (ETH) and thousands of
G+D Filia takes the advantages of cash and replicates them in the digital world. Basically, the central bank issues a
le representing a monetary value – just like notes and coins in the physical world. The
le is distributed via
commercial banks as per the current money cycle. Individuals can then use the data
le with their smartphone,
smartcard, smartwatch, or other electronic wallet.
GSMT Global Solution for Money Technology GSMT
Hyperledger Fabric is a modular blockchain framework that acts as a foundation for developing blockchain-based
products, solutions, and applications using plug-and-play components that are aimed for use within private
NZIA Cortex DLT
NZIA builds distributed national payments infrastructure enabling Central Bank-issued Digital Currencies
(CBDC). Our unique, hybrid technology uses blockchain, edge computing hardware and wireless communication
With legacy banks and big corporations eyeing the crypto space with increasing interest, R3 look to allow large
enterprise systems to easily adopt blockchain technology, with R3’s Corda blockchain. Many of us in
nance (DeFi) dream of a "bankless" world full of transparency and decentralization.
Stellar was built with CBDCs in mind: to allow trusted issuers to create digital representations of their assets
XRP Ledger The XRP Ledger (XRPL) is a decentralized, public blockchain led by a global developer community. Ripple
• Accessibility in payments refers to consumer access to a payment mechanism.
• Anonymity : To support practical anonymous private transactions. Cash allows
consumers to transact anonymously in the physical world. Most electronic payment
systems, including RTGS, do not allow for anonymity (KYC, AML, etc)
• Bearer Instrument is an instrument that is "payable" to anyone in possession of it.
Bearer instruments are "unique" in that whoever is holding the instrument has a
direct claim with the issuer.
• Independence refers to the degree of intermediation needed to use a payment
mechanism from the perspective of an end user.
• Operational e
ciency is an important component of payment mechanisms. Two
aspects of e
ciency are considered are central bank costs and other societal costs.
• Programmability is a potential feature of digital money. A CBDC designed to allow
for programmability, such as smart contracts, as part of the core platform could
enable automated execution of certain operations, such as payment of interest.
• Service availability. From an end-user perspective, a 24/7/365 payment mechanism
RTGS+ is an RTGS with potential enhancement such as 24/7/365 RTGS, allow non bank participation, etc
Comparing Means of Payment: What Role for a CBDC?
Cash equivalent CBDC
• CBDC serve as a cash equivalent. The only categories where such a CBDC cannot fully match the features of cash are anonymity and independence.
• KYC requirements are likely to apply to a CBDC arrangement. There are concerns that some may want a cash equivalent CBDC to circumvent these requirements, because when a CBDC
involves a transfer of digital information, it will retain an electronic record somewhere.
• It would likely be more expensive to operate than an RTGS system given the operational complexities involved with decentralized systems with o
• It would likely be cheaper than cash operations.
• A CBDC cash equivalent could potentially have the same level of programmability as an RTGS system that allows for external APIs.
• In many cases, an account-based CBDC would be the e
ective equivalent of a CB providing accounts directly to the public.
• This approach would also extend the digital perimeter of what RTGS systems could do.
• Relative to an RTGS system, a CBDC could support greater anonymity of e-transactions (given fewer intermediaries in the settlement process that may be subject to KYC requirements).
• If built on a new platform, a CBDC could expand programmability through smart contracts and, depending on the design, be more cost e
ective for a CB to operate than cash or an
• An account-based CBDC would likely not be a good cash equivalent in terms of anonymity, bearer instrument, or degree of independence.
• A CBDC can also be designed to have a tiered structure in which CBDC is issued by the CB and intermediaries handle payments.
• The key advantage of a hybrid CBDC over an RTGS system is the potential programmability of a CBDC instrument.
• A CBDC could allow for smart contracts, whereas an RTGS system would be limited to API programmability, which is not built into the platform itself.
• In other ways, a hybrid CBDC would be comparable to an RTGS+ system, which would be useful to a CB if some of the work and costs of maintaining the ledger are shifted to
participants, given that the model would make intermediaries responsible for enabling transactions.
Comparison of CB Payment Mechanism Cash Equivalent CBDC
Account Based CBDC Hybrid CBDC
CBDC in Low Connectivity Area
adopt Narrow-Band Internet of Things (NB-IoT) technology,
simplify application for high latency connection,
er capabilities and reduce only sending the essential data
•Visa states it can handle 24,000 tps, based on IBM testing conducted in
2010. This figure is widely cited but has never actually been reached in
real time. The company says that it can handle up to 56,000.
•PayPal can handle around 193 transactions per second. This figure is
based off the total transactions processed per year and averaged out per
second. The company has stated that it handled 450 tps on cyber Monday
•Ripple can handle 1,500 tps and takes around 4 seconds to confirm. The
team claims 50,000 tps.
•Stellar (a fork of ripple) can handle 1000 tps takes 2–5 seconds to
•Bitcoin Cash can handle 61 tps and takes 60 minutes to confirm.
•Litecoin can handle 56 tps with Segwit and takes 30 minutes to confirm.
•Bitcoin can handle 7 tps and takes 60 minutes to confirm. It currently
averages 3 tps.
•Ethereum can handle 25 tps and takes 6 minutes to confirm. It
currently averages around 15 tps.
•IOTA can handle 1500 tps and takes 2 minutes to confirm.
However, real time stress tests show it is currently handling 3 tps.
•Monero takes about 30 minutes to confirm as per Kraken. Transaction
speeds are unknown, though estimated to be around 4 tps.
•DASH can handle 28 tps and takes 15 minutes to confirm. Average tps is
about 10(a much lower figure is claimed by the DASH team in terms of
Solana 65,000 TPS 7 seconds
Cardano 1,000 TPS 10 min
Algorand 3,000 TPS 45 seconds
Avalanche 5,000 TPS 2 seconds