Retail Central Bank Digital Currency: Motivations, Opportunities, and Mistakes
Geoffrey Goodell, Hazem Danny Al-Nakib, Tomaso Aste
TL;DR
The paper critically analyzes retail CBDC proposals from the US, UK, and EU, arguing that current designs overly rely on custodial accounts, centralized processing, and data-rich infrastructures that threaten privacy and consumer control. It advocates a token-based, non-custodial model with privacy-by-design, where individuals can directly possess money and transact with minimal central control, supported by distributed, open architectures and privacy-enhancing technologies. The authors identify risks to monetary sovereignty, potential for surveillance, and misaligned incentives that favor incumbent business models over public interest, offering a path toward a public money system centered on user rights. They propose a set of desiderata and design principles to realize a democratic, competitive, and privacy-preserving digital currency infrastructure that serves the public interest and fosters innovation.
Abstract
Nations around the world are conducting research into the design of central bank digital currency (CBDC), a new, digital form of money that would be issued by central banks alongside cash and central bank reserves. Retail CBDC would be used by individuals and businesses as form of money suitable for routine commerce. An important motivating factor in the development of retail CBDC is the decline of the popularity of central bank money for retail purchases and the increasing use of digital money created by the private sector for such purposes. The debate about how retail CBDC would be designed and implemented has led to many proposals, which have sparked considerable debate about business models, regulatory frameworks, and the socio-technical role of money in general. Here, we present a critical analysis of the existing proposals. We examine their motivations and themes, as well as their underlying assumptions. We also offer a reflection of the opportunity that retail CBDC represents and suggest a way forward in furtherance of the public interest.