A group of central bankers, in cooperation with the Bank for International Settlements (BIS), has published a new report setting out the main principles with which central banks‘ digital currencies (CBDCs) will have to comply in order to be consistent with public policy objectives.

Main features of CBDCs
The 26-page report, entitled „Central bank digital currencies: foundational principles and core features“, examines the feasibility of CBDCs to help banks meet their policy objectives. It covers the key principles and features. This report is the first in a series of new reports to be produced in cooperation with central banks worldwide on related issues.

According to the report, in order to fulfil the role of a CBDC that fits into the current regulatory landscape, these currencies must contain a total of 14 features, including:

Convertibility: the CBDC must be interchangeable with cash.

User-friendly: CBDC payments should be as easy to use as other payment methods, such as cash and mobile payments.
Immediate: Transactions must be settled immediately, or close to it.
Scalable: The system must be able to expand to cope with larger future volumes.
High throughput: CBDCs must be able to handle a large number of transactions simultaneously.
Actually, therefore, the last two points are pretty much the same.

What kind of blockchain to use?
But how can these requirements be achieved? Some central banks choose to build a decentralised blockchain. Others opt for a central enterprise blockchain, such as R3 Corda or Hyperledger Fabric. Publicly available blockchains suffer from scale problems, they can only process a few tens to hundreds of transactions per second.

The Swedish central bank recently started a pilot for the e-Chrone using R3’s Corda platform. The European Central Bank (ECB) seems to use the same blockchain for the E-euro. But other blockchains do use a public blockchain. Ukraine is testing Stellar’s blockchain, and the Marshall Islands are using Algorand’s blockchain.

According to the report, banks may be motivated to investigate and develop a CBDC for a number of reasons, including improving cross-border payments, supporting public privacy and encouraging financial inclusion. But development has been slowed down by regulatory and technical obstacles, which still need to be overcome.