6 ms·

Central Bank Digital Currency – US Senate Testimony of Dr. Neha Narula [pdf]

40 points by stikit 5y ago

dcolkitt 5y ago
A simple question. Is there any reason not to put a Fed backed stablecoin on Ethereum and the other major blockchains? Even if you're crypto-skeptical, what is the downside? In a world where Tether didn't have mass adoption, I can see why you might oppose it. But Tether and other stablecoins already exist and are widely used. DeFi already trivially interacts with fiat prices. We also know that Tether poses a serious, potentially systematic risk. The Fed could put it out of business overnight just by deploying a simple ERC20 token tracker.
- toomuchtodo 5y ago
  Because there's no benefit over a central system. If you trust the central bank (which a vast majority of participants in the financial system do), you don't need distributed anything. Blockchains are for trustless systems. The US financial and capital systems are built on legal and regulatory trust. Your smart contract will never override a judge or a regulatory body. The federal government need not deploy a crypto token in order to kill Tether. They will simply regulate it out of existence. It is clear this is the path we're on from Yellen's statements and the nomination of Gary Gensler to the SEC (who previously taught about cryptocurrency systems at MIT) [1]. Globally, China is cracking down hard, and Europe seems to be preparing to do so. None of this should be unexpected to an educated scholar of history and nation state mechanics. > It is important to note that a CBDC might not be the only way to address some of these problems; for example, in the US we might improve financial inclusion by requiring commercial banks to provide free, no-minimum accounts to users [2] [3], or by limiting or eliminating fees, as these were some of the reasons listed when the US unbanked were asked why they don’t have bank accounts. So, instant payments are coming in the next 18 months [3] (it is actively in testing currently with a handful of participants), and free accounts for everyone is a stroke of legislative pen. What's blockchain solving? [1] https://www.youtube.com/watch?v=EH6vE97qIP4 https://www.youtube.com/watch?v=EH6vE97qIP4 (MIT 15.S12 Blockchain and Money, Fall 2018, Instructor: Prof. Gary Gensler) [2] https://www.congress.gov/bill/116th-congress/senate-bill/3571/text https://www.congress.gov/bill/116th-congress/senate-bill/357... (Banking for All) [3] https://www.federalreserve.gov/paymentsystems/fednow_faq.htm https://www.federalreserve.gov/paymentsystems/fednow_faq.htm (FedNow Instant Payment system, 2023 GA)
  - craigc 5y ago
    I agree that running it on top of another ledger like ETH or BTC makes no sense. That said, the idea of trusting a central bank that is completely unaccountable to the public or even to the Government is crazy to me.
    - icf80 5y ago
      This is how the Fed is run, they need the power to issue money whenever there is need without oversight.
      - mastax 5y ago
        "Without oversight" is stronger than reality as Trump's threatening of Powell illustrates. It is true that there is a strong culture of a politically independent, technocratic Fed. However this is a relatively recent invention by Volcker in the 80s. Volcker was pretty convincing about it's merits, hence it's survival, but even he was threatened by Reagan to not raise rates during the re-election campaign.
      - pbak 5y ago
        I'd ask "whose oversight is avoided ?", and "whose isn't ?". You are supposing the Fed's deciding committees are acting fully independently (wittingly or not) within their mandate. AFAIK the process isn't exactly transparent, even ex post facto. Similarly, we've seen last 12 years there's more than one way to skin a cat - issue "money" at the fed level - than just printing. They invented at least 3 mechanisms since. That being said, it's not entire clear to me how current tokens/coins solve that conundrum without losing some major desirable/necessary "macro" features and flexibility.
    - jjoonathan 5y ago
      Sure, go ahead, make the federal reserve more politically accountable -- and watch as inflation spirals out of control because the tool to combat inflation (raising interest rates) is political poison. Just how poisonous? Well, what have you heard about presidents Carter and Reagan?
  - 5y ago
- BrianOnHN 5y ago
  How is that not the same as the Fed endorsing the Ethereum Blockchain?
- Kalium 5y ago
  > A simple question. Is there any reason not to put a Fed backed stablecoin on Ethereum and the other major blockchains? Even if you're crypto-skeptical, what is the downside? Without a substantial benefit that advances the Federal Reserve's core mission, there would seem to be no reason to do it. "Why not?" is one approach, and a perfectly valid one! It's perhaps often not how central banks approach decisions though.
- graeme 5y ago
  The blockchain is massively energy inefficient with high transaction costs. That seems like sufficient reason not to put actual economic transactions on the blockchain. Regulation and criminal penalties is sufficient for dealing with the frauds of the world. The answer to Madoff wasn’t “outcompete him” it was jail.
- icf80 5y ago
  They need total control. Why would they want to do that, that will make the price of ETH to skyrocket. The Fed will never run on blockchain, imagine someone guessing the private key. The Fed needs total control and this is good. All the transaction will pass through them and no one else.
  - unabridged 5y ago
    The US government really doesn't use this much capital control in the current financial system. Look at the fx markets, look at all the dollar denominated bonds and paper issued by foreign companies and governments. They don't need to control each transaction, they just want to know where each transaction is coming & going. >The Fed will never run on blockchain, imagine someone guessing the private key. This is not a worry, if they lost a key they could just rollback to a previous good state and replace with a new token. This happens frequently on ethereum.
- herendin 5y ago
  I can think of at least two potential downsides Fear of losing control in future. For example Ethereum presently seems to be quite secure based on the potential reward of an attack vs the assets that might be deployed to attack Ethereum. But if a Fed-backed stablecoin relies on Ethereum, then a very expensive attack on Ethereum could become more attractive to an adversary. And how about the risk of an accidental coding error by Ethereum developers in a future update? Fear of lending legitimacy to other cryptocurrencies and tokens. Their values would explode if the Fed issued an ERC-20 token on the Ethereum blockchain
- randomhodler84 5y ago
  Because ethereum is hopelessly broken, inefficient, unscalable tech. You do not want your entire currency running on it. If it moves to PoS, it will be even worse, with frequent chain reorgs causing tx reversing and contract balance non-determinism. If you want to see a vision of broken eth, just look at polygon.
- bitcurious 5y ago
  Central bank controls rates, not gas.
- kipchak 5y ago
  For Architecture 7 which is similar they call out the reversal of the DAO hack as an example of giving over control to other groups being potentially undesirable. I'm not sure how likely something like that negatively affecting a fedcoin would be, but I can see them wanting as much control of the ecosystem as possible.
- runbathtime 5y ago
  A dollar is not a stablecoin period. A stablecoin isn't just a number on a ledger and it isn't a physical dollar. It is a really bad idea from a privacy perspective. Physcial cash is better, the fact that bitcoiners like this idea means they aren't really for privacy and stuff like that. Also blockchain has many design flaws including that they can be attacked and there is only 'rough' consensus about the order of transactions. It is a no good terrible idea.
- dalbasal 5y ago
  So... I don't quite understand all the implications of a "fedcoin." Isn't it basically creating an alternative USD, which the Fed becomes obligated to keep in parity with regular USD? What happens if a proverbial Soros messes starts exchanging these at massive rates? Does the Fed need to start printing USD (or stablecoin) to meet the demand? Parity is a hard problem. That's why we abandoned fixed exchange rate currency systems, for the most part. Also, if Tether is anything to go by, demand for stablecoins is sky high already. The day the Fed decides to issue Fedcoin, demand could be trillions. The Fed would be receiving ^I could be totally off. Haven't thought about this much. Please don't bite me.
- XorNot 5y ago
  The US Federal Reserve has no interest in holding a whole lot of random cryptocurrencies. Tether doesn't really work - letting you trade arbitrary cryptos into tethers means the backing company is holding arbitrary cryptos it hopes to resell for more tethers.
  - unabridged 5y ago
    Tether doesn't hold arbitrary crypto (except a small amount to pay transaction fees on the blockchain). They are just a window where you can exchange tether tokens on the blockchain for USD in a bank account. The exchange of tether tokens with other crypto is decentralized and handled by the participants.
- headmelted 5y ago
  Because then the Fed is exposing itself to the mess that is Ethereum (and honestly, blockchain tokens in general). In order to produce a token on a given blockchain as a central government, you’re by implication saying that the blockchain itself is legitimate. In the case of Ethereum this would be disastrous. As an example - What happens if people start putting this Fed-backed token into solidity contracts? You can’t wave it away from court and say “this is funny money and has no legal standing” if someone raises a dispute when you (the government) issued the token. You likewise can’t start treating Ethereum contracts as legally valid because they are utterly unfit for that purpose for literally innumerable reasons.
mistrial9 5y ago
related work -- zkLedger: Privacy-preserving auditing for distributed ledgers. 15th USENIX Symposium on Networked Systems Design and Implementation (NSDI 18) . 2018.
WannaFly 5y ago
This person... so much talk about convenience of payment, and a total misunderstanding of why goverments want CBDC. And she call herself a PhD? And no word about the threat of CBDC.
- bdcravens 5y ago
  > And she call herself a PhD? You don't call yourself anything. You either have a PhD, or you don't. It's not conditional on having ideas others agree on or being 100% correct.
  - dboreham 5y ago
    You could have a PhD but keep quiet about it.
    - bdcravens 5y ago
      I'm certain when she's at the grocery store or the post office, she doesn't tell everyone she has a PhD. However, in her job, and in testimony before Congress that seems relevant: "My name is Neha Narula and I am the Director of the Digital Currency Initiative at the Massachusetts Institute of Technology. We are a research group based within the MIT Media Lab focusing on cryptocurrency and digital currency design and implementation, addressing challenges in security, scalability, and privacy. I have taught five graduate cryptocurrency courses across departments at MIT and during the course of my PhD work I conducted research in MIT’s Computer Science and Artificial Intelligence Laboratory on databases and distributed systems."
f38zf5vdt 5y ago
> Financial data can reveal uncomfortable information about a consumer’s preferences and habits; our finances give a window into our lives. Any US CBDC should prioritize user privacy and data protection. In addition, collecting and storing personally identifying user data at all makes it vulnerable to accidental leaks or malicious hacking attempts, so the design of a US CBDC should strive to minimize data collection to only what is critically necessary to safely process transactions. > A CBDC which is in some part run by the central bank does not necessarily require the central bank to have visibility into fine-grained transaction data. Legitimate public policy goals relating to combating criminal activity can be fulfilled while preserving the privacy of the public and preventing a central bank being drawn into the commercial surveillance models which are now prevalent in the private sector. It sounds like they're prioritizing a system that uses cryptography to ensure a zero-trust and plausible deniability environment similar to cash. For the US, I think this is the right path for their government. They need to be able to easily transfer monetary assets to foreign agents or governments without anyone snooping in on them. Even the possibility of a back door would mean that one of their enemies could see where resources are being allocated internationally, which would be a vulnerability. This would also promote use of the currency among others in low trust environments, which is part of why the US dollar has such significant international hegemony in comparison to something like the Yuan/Digital Yuan. No third world government wants to be in the position where the Chinese can see how they're spending their funds and immediately freeze them based on this oversight.
steve76 5y ago
Print yourself rich Make the job interview impossible Cheer on the burning and looting of your own country Complain about the skills gap
nobrains 5y ago
OK, please help me understand: 1) Cryptocurrencies are mined decentrally. In this case, who will mine and how? 2) Crypto blockchains are secure by having many distributed miners. In this case, how will the blockchain be decentrally secured? (And if it will not be decentrally secured, then will it simply be a central database?) Thanks.
- tiku 5y ago
  Exactly. This is just more of the same. Only difference is that it gives governments more insight and control.
- headmelted 5y ago
  It’s still not at all clear to me why crypto-currencies are even being considered for CBDC’s. Is the justification in the paper and I’m just missing it?
  - f38zf5vdt 5y ago
    They don't seem to be, from the paper. > Some purport that a CBDC must be built on distributed ledger technology; this is putting the cart before the horse. > Architecture 7 is proposed by some blockchain advocates; they suggest that a central bank issue digital currency on an existing blockchain system. This might be a smart contract platform like Ethereum or a permissioned blockchain like Facebook’s Diem. Under this type of architecture, a central bank could control issuance of the digital currency, but would give up all other control to the governance of the underlying blockchain. For example, the participants in the blockchain network might decide to reverse a transaction, as happened in Ethereum after one of its smart contracts, the DAO, was hacked. Ethereum developers, miners, and community members cooperated to reverse the hack and restore funds.15 It is extremely unlikely any central bank would want to put this level of control in the hands of blockchain operators. Blockchain networks are open and accessible and have high levels of innovation, though there has not necessarily been a concerted effort to add features to support financial inclusion.
    - hammock 5y ago
deleted 5y ago
[deleted]
XorNot 5y ago
How is this not just a database? There's no reason for something like this to be a cryptocurrency is the problem, because the central bank literally has the power to issue new currency as it sees fit. Wouldn't this be closer to offering Federal Reserve clearing accounts to regular citizens as a service?
- rahimnathwani 5y ago
  What do you mean by 'this'? The paper talks about 7 different models of CDBC. To which does your comment relate?
  - XorNot 5y ago
    The core question? Why would the Federal Reserve, or any other central bank, need to create a "digital" currency when it manages the real currency via it's own clearing accounts? Most money in developed economies is not actually physically existent currency - it is already digital, the question is whether you can access the banking services as a participant. In the case of Central Banks, the issue is that it is not possible to bank through them as a regular consumer. This is, very much, an issue which should be solved: basic banking services access is a big problem for low income people. But it's not remotely clear why the concept of "digital currency" starts to get involved at all: this is an identical situation to regular banking and online payments, nothing is fundamentally different - the entity involved is already literally the arbitrator and source of truth of how much currency exists.
    - rahimnathwani 5y ago
      #1 because the only way regular people can hold central bank money (as distinct from retail bank liabilities) is cash. And cash isn't convenient for most transactions. #2 Yes, most money is digital. But most of that money is NOT central bank money. Imagine you 'have' $500k in the form of digital money. How much of that will you still have if your bank goes bust? #3 Yes, this can be solved in a different way (as it has been in the UK). #4 Regular banking and online payments are built on legacy payment rails. Transactions between customers of different banks are slow or expensive or both. A CDBC does not need to use distributed ledger technology. Depending on your objectives, it could be 'just a database'. But that's the point: people are still trying to work out what those objectives are. Perhaps privacy and anonymity is an objective. Perhaps the opposite (all transactions can be tracked back to an individual) is an objective. Those objectives (and competitive forces) will determine how a CDBC is implemented. "the entity involved is already literally the arbitrator and source of truth of how much currency exists" Yes, but it might simultaneously want to increase transparency. How do you know the central bank is truthfully reporting M1? Could a distributed ledger help?
tiku 5y ago
It would be really cool to see all the corrupt money on the blockchain, no more easy lobbying etc. You can exactly see all the government spending (wasting).
- lifty 5y ago
  That's a very attractive use of blockchain. It would be great if we can have accountability and traceability for all publicly spent money. It would also be nice to be able to trace all public contracts in a similar manner.
victor106 5y ago
> Traditional electronic transaction systems today have high fees, limit access, and have not evolved fast enough to keep pace with the demand for online digital payments. High fees:- How much do merchants/consumer pay today? I am not sure if transacting a digital currency is going to be free. Limit access:- How does the current system limit access? As a merchant I can easily signup with thousands of payment providers. Not evolved fast enough:- I agree with this but from where we were say 20 years ago I would say they have evolved a fair bit.

40 points by stikit 5y ago

A simple question. Is there any reason not to put a Fed backed stablecoin on Ethereum and the other major blockchains? Even if you're crypto-skeptical, what is the downside? In a world where Tether didn't have mass adoption, I can see why you might oppose it. But Tether and other stablecoins already exist and are widely used. DeFi already trivially interacts with fiat prices. We also know that Tether poses a serious, potentially systematic risk. The Fed could put it out of business overnight just by deploying a simple ERC20 token tracker.

toomuchtodo 5y ago
Because there's no benefit over a central system. If you trust the central bank (which a vast majority of participants in the financial system do), you don't need distributed anything. Blockchains are for trustless systems. The US financial and capital systems are built on legal and regulatory trust. Your smart contract will never override a judge or a regulatory body. The federal government need not deploy a crypto token in order to kill Tether. They will simply regulate it out of existence. It is clear this is the path we're on from Yellen's statements and the nomination of Gary Gensler to the SEC (who previously taught about cryptocurrency systems at MIT) [1]. Globally, China is cracking down hard, and Europe seems to be preparing to do so. None of this should be unexpected to an educated scholar of history and nation state mechanics. > It is important to note that a CBDC might not be the only way to address some of these problems; for example, in the US we might improve financial inclusion by requiring commercial banks to provide free, no-minimum accounts to users [2] [3], or by limiting or eliminating fees, as these were some of the reasons listed when the US unbanked were asked why they don’t have bank accounts. So, instant payments are coming in the next 18 months [3] (it is actively in testing currently with a handful of participants), and free accounts for everyone is a stroke of legislative pen. What's blockchain solving? [1] https://www.youtube.com/watch?v=EH6vE97qIP4 https://www.youtube.com/watch?v=EH6vE97qIP4 (MIT 15.S12 Blockchain and Money, Fall 2018, Instructor: Prof. Gary Gensler) [2] https://www.congress.gov/bill/116th-congress/senate-bill/3571/text https://www.congress.gov/bill/116th-congress/senate-bill/357... (Banking for All) [3] https://www.federalreserve.gov/paymentsystems/fednow_faq.htm https://www.federalreserve.gov/paymentsystems/fednow_faq.htm (FedNow Instant Payment system, 2023 GA)
- craigc 5y ago
  I agree that running it on top of another ledger like ETH or BTC makes no sense. That said, the idea of trusting a central bank that is completely unaccountable to the public or even to the Government is crazy to me.
  - icf80 5y ago
    This is how the Fed is run, they need the power to issue money whenever there is need without oversight.
    - mastax 5y ago
      "Without oversight" is stronger than reality as Trump's threatening of Powell illustrates. It is true that there is a strong culture of a politically independent, technocratic Fed. However this is a relatively recent invention by Volcker in the 80s. Volcker was pretty convincing about it's merits, hence it's survival, but even he was threatened by Reagan to not raise rates during the re-election campaign.
    - pbak 5y ago
      I'd ask "whose oversight is avoided ?", and "whose isn't ?". You are supposing the Fed's deciding committees are acting fully independently (wittingly or not) within their mandate. AFAIK the process isn't exactly transparent, even ex post facto. Similarly, we've seen last 12 years there's more than one way to skin a cat - issue "money" at the fed level - than just printing. They invented at least 3 mechanisms since. That being said, it's not entire clear to me how current tokens/coins solve that conundrum without losing some major desirable/necessary "macro" features and flexibility.
  - jjoonathan 5y ago
    Sure, go ahead, make the federal reserve more politically accountable -- and watch as inflation spirals out of control because the tool to combat inflation (raising interest rates) is political poison. Just how poisonous? Well, what have you heard about presidents Carter and Reagan?
- 5y ago
BrianOnHN 5y ago
How is that not the same as the Fed endorsing the Ethereum Blockchain?
Kalium 5y ago
> A simple question. Is there any reason not to put a Fed backed stablecoin on Ethereum and the other major blockchains? Even if you're crypto-skeptical, what is the downside? Without a substantial benefit that advances the Federal Reserve's core mission, there would seem to be no reason to do it. "Why not?" is one approach, and a perfectly valid one! It's perhaps often not how central banks approach decisions though.
graeme 5y ago
The blockchain is massively energy inefficient with high transaction costs. That seems like sufficient reason not to put actual economic transactions on the blockchain. Regulation and criminal penalties is sufficient for dealing with the frauds of the world. The answer to Madoff wasn’t “outcompete him” it was jail.
icf80 5y ago
They need total control. Why would they want to do that, that will make the price of ETH to skyrocket. The Fed will never run on blockchain, imagine someone guessing the private key. The Fed needs total control and this is good. All the transaction will pass through them and no one else.
- unabridged 5y ago
  The US government really doesn't use this much capital control in the current financial system. Look at the fx markets, look at all the dollar denominated bonds and paper issued by foreign companies and governments. They don't need to control each transaction, they just want to know where each transaction is coming & going. >The Fed will never run on blockchain, imagine someone guessing the private key. This is not a worry, if they lost a key they could just rollback to a previous good state and replace with a new token. This happens frequently on ethereum.
herendin 5y ago
I can think of at least two potential downsides Fear of losing control in future. For example Ethereum presently seems to be quite secure based on the potential reward of an attack vs the assets that might be deployed to attack Ethereum. But if a Fed-backed stablecoin relies on Ethereum, then a very expensive attack on Ethereum could become more attractive to an adversary. And how about the risk of an accidental coding error by Ethereum developers in a future update? Fear of lending legitimacy to other cryptocurrencies and tokens. Their values would explode if the Fed issued an ERC-20 token on the Ethereum blockchain
randomhodler84 5y ago
Because ethereum is hopelessly broken, inefficient, unscalable tech. You do not want your entire currency running on it. If it moves to PoS, it will be even worse, with frequent chain reorgs causing tx reversing and contract balance non-determinism. If you want to see a vision of broken eth, just look at polygon.
bitcurious 5y ago
Central bank controls rates, not gas.
kipchak 5y ago
For Architecture 7 which is similar they call out the reversal of the DAO hack as an example of giving over control to other groups being potentially undesirable. I'm not sure how likely something like that negatively affecting a fedcoin would be, but I can see them wanting as much control of the ecosystem as possible.
runbathtime 5y ago
A dollar is not a stablecoin period. A stablecoin isn't just a number on a ledger and it isn't a physical dollar. It is a really bad idea from a privacy perspective. Physcial cash is better, the fact that bitcoiners like this idea means they aren't really for privacy and stuff like that. Also blockchain has many design flaws including that they can be attacked and there is only 'rough' consensus about the order of transactions. It is a no good terrible idea.
dalbasal 5y ago
So... I don't quite understand all the implications of a "fedcoin." Isn't it basically creating an alternative USD, which the Fed becomes obligated to keep in parity with regular USD? What happens if a proverbial Soros messes starts exchanging these at massive rates? Does the Fed need to start printing USD (or stablecoin) to meet the demand? Parity is a hard problem. That's why we abandoned fixed exchange rate currency systems, for the most part. Also, if Tether is anything to go by, demand for stablecoins is sky high already. The day the Fed decides to issue Fedcoin, demand could be trillions. The Fed would be receiving ^I could be totally off. Haven't thought about this much. Please don't bite me.
XorNot 5y ago
The US Federal Reserve has no interest in holding a whole lot of random cryptocurrencies. Tether doesn't really work - letting you trade arbitrary cryptos into tethers means the backing company is holding arbitrary cryptos it hopes to resell for more tethers.
- unabridged 5y ago
  Tether doesn't hold arbitrary crypto (except a small amount to pay transaction fees on the blockchain). They are just a window where you can exchange tether tokens on the blockchain for USD in a bank account. The exchange of tether tokens with other crypto is decentralized and handled by the participants.
headmelted 5y ago
Because then the Fed is exposing itself to the mess that is Ethereum (and honestly, blockchain tokens in general). In order to produce a token on a given blockchain as a central government, you’re by implication saying that the blockchain itself is legitimate. In the case of Ethereum this would be disastrous. As an example - What happens if people start putting this Fed-backed token into solidity contracts? You can’t wave it away from court and say “this is funny money and has no legal standing” if someone raises a dispute when you (the government) issued the token. You likewise can’t start treating Ethereum contracts as legally valid because they are utterly unfit for that purpose for literally innumerable reasons.

mistrial9 5y ago

related work -- zkLedger: Privacy-preserving auditing for distributed ledgers. 15th USENIX Symposium on Networked Systems Design and Implementation (NSDI 18) . 2018.

WannaFly 5y ago

This person... so much talk about convenience of payment, and a total misunderstanding of why goverments want CBDC. And she call herself a PhD? And no word about the threat of CBDC.

bdcravens 5y ago
> And she call herself a PhD? You don't call yourself anything. You either have a PhD, or you don't. It's not conditional on having ideas others agree on or being 100% correct.
- dboreham 5y ago
  You could have a PhD but keep quiet about it.
  - bdcravens 5y ago
    I'm certain when she's at the grocery store or the post office, she doesn't tell everyone she has a PhD. However, in her job, and in testimony before Congress that seems relevant: "My name is Neha Narula and I am the Director of the Digital Currency Initiative at the Massachusetts Institute of Technology. We are a research group based within the MIT Media Lab focusing on cryptocurrency and digital currency design and implementation, addressing challenges in security, scalability, and privacy. I have taught five graduate cryptocurrency courses across departments at MIT and during the course of my PhD work I conducted research in MIT’s Computer Science and Artificial Intelligence Laboratory on databases and distributed systems."

f38zf5vdt 5y ago

> Financial data can reveal uncomfortable information about a consumer’s preferences and habits; our finances give a window into our lives. Any US CBDC should prioritize user privacy and data protection. In addition, collecting and storing personally identifying user data at all makes it vulnerable to accidental leaks or malicious hacking attempts, so the design of a US CBDC should strive to minimize data collection to only what is critically necessary to safely process transactions. > A CBDC which is in some part run by the central bank does not necessarily require the central bank to have visibility into fine-grained transaction data. Legitimate public policy goals relating to combating criminal activity can be fulfilled while preserving the privacy of the public and preventing a central bank being drawn into the commercial surveillance models which are now prevalent in the private sector. It sounds like they're prioritizing a system that uses cryptography to ensure a zero-trust and plausible deniability environment similar to cash. For the US, I think this is the right path for their government. They need to be able to easily transfer monetary assets to foreign agents or governments without anyone snooping in on them. Even the possibility of a back door would mean that one of their enemies could see where resources are being allocated internationally, which would be a vulnerability. This would also promote use of the currency among others in low trust environments, which is part of why the US dollar has such significant international hegemony in comparison to something like the Yuan/Digital Yuan. No third world government wants to be in the position where the Chinese can see how they're spending their funds and immediately freeze them based on this oversight.

steve76 5y ago

Print yourself rich Make the job interview impossible Cheer on the burning and looting of your own country Complain about the skills gap

nobrains 5y ago

OK, please help me understand: 1) Cryptocurrencies are mined decentrally. In this case, who will mine and how? 2) Crypto blockchains are secure by having many distributed miners. In this case, how will the blockchain be decentrally secured? (And if it will not be decentrally secured, then will it simply be a central database?) Thanks.

tiku 5y ago
Exactly. This is just more of the same. Only difference is that it gives governments more insight and control.
headmelted 5y ago
It’s still not at all clear to me why crypto-currencies are even being considered for CBDC’s. Is the justification in the paper and I’m just missing it?
- f38zf5vdt 5y ago
  They don't seem to be, from the paper. > Some purport that a CBDC must be built on distributed ledger technology; this is putting the cart before the horse. > Architecture 7 is proposed by some blockchain advocates; they suggest that a central bank issue digital currency on an existing blockchain system. This might be a smart contract platform like Ethereum or a permissioned blockchain like Facebook’s Diem. Under this type of architecture, a central bank could control issuance of the digital currency, but would give up all other control to the governance of the underlying blockchain. For example, the participants in the blockchain network might decide to reverse a transaction, as happened in Ethereum after one of its smart contracts, the DAO, was hacked. Ethereum developers, miners, and community members cooperated to reverse the hack and restore funds.15 It is extremely unlikely any central bank would want to put this level of control in the hands of blockchain operators. Blockchain networks are open and accessible and have high levels of innovation, though there has not necessarily been a concerted effort to add features to support financial inclusion.
  - hammock 5y ago

deleted 5y ago

[deleted]

XorNot 5y ago

How is this not just a database? There's no reason for something like this to be a cryptocurrency is the problem, because the central bank literally has the power to issue new currency as it sees fit. Wouldn't this be closer to offering Federal Reserve clearing accounts to regular citizens as a service?

rahimnathwani 5y ago
What do you mean by 'this'? The paper talks about 7 different models of CDBC. To which does your comment relate?
- XorNot 5y ago
  The core question? Why would the Federal Reserve, or any other central bank, need to create a "digital" currency when it manages the real currency via it's own clearing accounts? Most money in developed economies is not actually physically existent currency - it is already digital, the question is whether you can access the banking services as a participant. In the case of Central Banks, the issue is that it is not possible to bank through them as a regular consumer. This is, very much, an issue which should be solved: basic banking services access is a big problem for low income people. But it's not remotely clear why the concept of "digital currency" starts to get involved at all: this is an identical situation to regular banking and online payments, nothing is fundamentally different - the entity involved is already literally the arbitrator and source of truth of how much currency exists.
  - rahimnathwani 5y ago
    #1 because the only way regular people can hold central bank money (as distinct from retail bank liabilities) is cash. And cash isn't convenient for most transactions. #2 Yes, most money is digital. But most of that money is NOT central bank money. Imagine you 'have' $500k in the form of digital money. How much of that will you still have if your bank goes bust? #3 Yes, this can be solved in a different way (as it has been in the UK). #4 Regular banking and online payments are built on legacy payment rails. Transactions between customers of different banks are slow or expensive or both. A CDBC does not need to use distributed ledger technology. Depending on your objectives, it could be 'just a database'. But that's the point: people are still trying to work out what those objectives are. Perhaps privacy and anonymity is an objective. Perhaps the opposite (all transactions can be tracked back to an individual) is an objective. Those objectives (and competitive forces) will determine how a CDBC is implemented. "the entity involved is already literally the arbitrator and source of truth of how much currency exists" Yes, but it might simultaneously want to increase transparency. How do you know the central bank is truthfully reporting M1? Could a distributed ledger help?

tiku 5y ago

It would be really cool to see all the corrupt money on the blockchain, no more easy lobbying etc. You can exactly see all the government spending (wasting).

lifty 5y ago
That's a very attractive use of blockchain. It would be great if we can have accountability and traceability for all publicly spent money. It would also be nice to be able to trace all public contracts in a similar manner.

victor106 5y ago

> Traditional electronic transaction systems today have high fees, limit access, and have not evolved fast enough to keep pace with the demand for online digital payments. High fees:- How much do merchants/consumer pay today? I am not sure if transacting a digital currency is going to be free. Limit access:- How does the current system limit access? As a merchant I can easily signup with thousands of payment providers. Not evolved fast enough:- I agree with this but from where we were say 20 years ago I would say they have evolved a fair bit.