Tashi Dorji P: Understanding the new world of Central Bank Digital Currency

The Press Release by the Royal Monetary Authority of Bhutan (Central Bank) issued on 23rd September 2021 stated Bhutan will pilot a project on "central bank digital currency" (CBDC) in collaboration with Ripple Labs, Inc. of USA. However, the word CBDC is new and arcane to many. So this is an attempt to demystify CBDC...

Circular by RMA

BTW this is my preliminary Draft

I will be attending my class on Crypto and CBDC on Nov 8 2021... so expect a new version after tha,,,

I have used very informal language as well...

So... ahmm .. enjoy...

I want to zoom down on what type of CBDC using the figures used by the BIS and make several inferences

BIS- Bank of International Settlements states there are thee architecture of CBDC

So indirect CBDC will imply similar to today's system of mBoB...etc. So rule out this for the pilot project the RMA is currently pursuing.
Direct CBDC would require massive technological capabilities...Because RMA will handle the entire payment system by itself- handling all the transactions. So a project that Bhutan is implementing could be Hybrid architecture.

Now How will CBDC infrastructure look like: will it be conventional (centralized) or decentralize using Digital Ledger Technology (it is a kind of blockchain but - let's say blockchain in a controlled environment for now). Refer to the BIS figure below and watch out for the four possible outcomes on the right which can be further grouped into two: accounts and token-based.
the Centralised CBDC accounts and the token system might have higher transaction costs as its more centralize and conventional approach. The Project Bhutan is exploring should be either a DLT account or token-based. Further strengthening earlier inference of CBDC architecture of Indirect/ Hybrid CBDC.

How do you safeguard Your privacy while using CBDC?

Ok so remember the previous graph at the accounts vs token ... Account-based is more like a conventional based system. This system can pose a challenge for CBDC to operate as it implies mapping each individual to one and only one identifier across the entire payment system. it can impair universal access.

On the other hand, a token-based system can ensure universal access as anybody can obtain a digital signature- offer good safeguard by default. The problem is if you lose the secret key then it will be difficult to trace the... u know what I mean.

Are you still confused between an account and a token-based system? Then account-based means you have a username and password. In a token-based system, your password is valid for a certain period of time like google authenticator, Duo mobile, etc.

Therefore I imply its a digital token-based safeguard system