Central Bank Digital Currencies Need Decentralization

Saturday 11 May 2020, 11:20 PM AEST - 1 week ago

london-bankofenglandThe Bank of England (Credit: Wikimedia Commons)

Igor Mikhalev is an expert principal at BCG helping clients develop business models with blockchain technologies and digital currencies. Kaj Burchardi is a Managing Director with BCG and leads the blockchain practice of BCG/Platinion globally.

Digital currencies hold a long-term promise to change the way nations, corporations, and people transact value. Some of them – combining both cryptocurrency benefits (disintermediation, high speed, and low cost of transactions) as well as qualities of traditional currencies (e.g. price stability and being able to act as legal tender) – challenge traditional financial systems at the core. While first-generation digital currencies deployed by consortia of industry players may only deliver incremental changes such as the reduction in money movement prices and lowering the cost of capital for unbanked, adoption across nations through CDBC 2.0 holds the potential to unlock significant value available for first-movers to capture.

In our recent work, we have analyzed key notable projects and developments around Digital Currencies, distilling them into key Digital Currency archetypes, see exhibit 1.

exhibit-1Exhibit 1: archetypes and design considerations of digital currencies (Credit: BCG)

Throughout our analysis, we have developed and applied the Total Social Impact framework (see exhibit 2) to understand the societal value chain impact of the introduction of digital currencies as well as potential effects of adoption by nations, central banks, corporations, and individual users. Specific underlying drivers have been defined and evaluated for each TSI dimension.

exhibit-2Exhibit 2: The Total Societal Impact framework for digital currencies BCG)

CDBC 2.0 is the second step in the evolution of CBDCs: a new, most impactful (see exhibit 4) form of money issued digitally by one or many central banks using blockchain technology, interoperable and programmable by design.

Currently, the responsibility for the ...

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