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A Step-by-step Guide for Central Bankers to Launch CBDC

A Step-by-step Guide for Central Bankers to Launch CBDC 101
Source: iStock/Huseyin Bostanci

Thinkers at the World Economic Forum (WEF) have drafted what they call a Central Bank Digital Currency (CBDC) “walkthrough” for bankers and governments looking to launch digital fiats in the near future.

The walkthrough takes the form of a 28-page “toolkit” document, available for download here.

But if wading through all of that sounds like an exhausting task, never fear – as Cryptonews.com has prepared a succinct précis below. And beneath that, we’ve also taken a look at what a financial expert is making of the guide.

Here is the WEF’s step-by-step guide to launching a CBDC:

Step 1: Analysis

The WEF suggests governments and central banks conduct background analysis, looking at potential “legal and institutional challenges,” identifying possible problems and making decisions about project management. At the end of this stage, the central bank needs to ask itself if the case for issuing a CBDC is still compelling enough to move on to Step 2.

Step 2: More analysis

Banks now need to decide which form of CBDC they would like to create. Central bankers have floated a wide range of ideas for CBDCs – ranging from cross-border initiatives to two-tiered models. To pick the right model, banks would do well to look at how digital payments are used in their country. In many cases, e-pay infrastructure is widespread – in others, less so. “Hybrid” options may also be considered.

Step 3: Even more analysis

Now banks need to take a very close look at what sort of obstacles they would need to navigate to issue a CBDC. How would the CBDC meet existing compliance laws, and would any new legislation be required prior to issuance? What macroeconomic issues are at stake and how would they be addressed? How would a CBDC ensure user data is properly protected? All these questions need to be answered at this stage.

Step 4: Design

Here is where the right IT structures need to be put in place. Governance matters also need to be sorted out at this point – with banks deciding exactly who is in charge of what…and who steps in if something goes wrong. (Learn more: Most Central of All Banks Releases 12 Design Elements For a Wholesale Token)

Step 5: Implementation

Here, banks draw up their preliminary implementation strategies and look at the main deployment-related issues. Experimentation in the form of a proof‑of‑concept (PoC) or pilot would help “test against defined research goals and provide valuable insight into a potential CBDC deployment.”

Expert Analysis

Professionals from across the financial industry are already having their say on the toolkit, with ING economist Carlo Cocuzzo writing,

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“Cross-border CBDCs could be a game-changer but regulatory and legal hurdles are likely to endure.”

Cocuzzo added that another major takeaway from the toolkit is the fact that cybersecurity is “the primary risk for central banks,” with potential issues like double-spending a possible wrinkle.

The ING expert concluded,

“More research is needed in this area, arguably with a bigger focus on implementation challenges, financial market responses and consumer behavior.”

The Bank for International Settlements said today that around 7 undisclosed central banks, representing 20% of the world’s population, are likely to launch CBDCs in 3 years.

Meanwhile, a reported this week, a central bank group will assess potential cases for CBDCc. The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Sveriges Riksbank, the Swiss National Bank, and the Bank for International Settlements have created a group to share experiences as they assess the potential cases for CBDC in their home jurisdictions. Per the press release, they will assess CBDC use cases, and economic, functional and technical design choices, including cross-border interoperability, as well as the sharing of knowledge on emerging technologies.

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