## Behind the Scenes of Central Bank Digital Currency — ftnea2022004

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---

### Introduction and scope
- Purpose: identify and share insights, lessons, and open questions from six advanced CBDC projects; not an evaluation of jurisdictions’ courses of action.
- Information basis: collaboration and exchanges with respective central banks; unless cited, information stems from interviews and workshops with CBDC project teams; central banks reviewed text before publication.
- Six projects selected using these criteria:
  - A CBDC already issued: Central Bank of The Bahamas (CBOB) — Sand Dollar.
  - Pilot with actual households and firms: People’s Bank of China (PBOC) — e-CNY; Eastern Caribbean Central Bank (ECCB) — DCash; Banco Central de Uruguay (BCDU) — e-peso.
  - Political agenda analysis outside central bank: Sveriges Riksbank — e-krona.
  - Central bank tested and decided against issuing for now: Bank of Canada (BOC).
- Paper structure (primary considerations): Policy Goals; Operating Model; Design Features; Technology; Legal Foundations; Project Implementation.

### Current status (exact reported facts)
- CBOB, Sand Dollar:
  - Sand Dollar officially launched in October 2020.
  - In late 2021, around 20,000 active Sand Dollar wallets in a population of about 400,000; functions continuously being developed.
- BOC:
  - Has not found pressing case for a digital currency given present state of Canadian payments system; continues to build technical capacity and monitor developments.
- PBOC, e-CNY:
  - No formal decision to launch; runs pilot in parallel in different regions.
  - By October 2021, over 123 million e-CNY wallets registered with individuals and about 9.2 million wallets held by firms—rapid increase from approximately six million active e-CNY wallets in April 2021.
  - In a population of nearly one and a half billion, share of e-CNY users approaching 10 percent.
- ECCB, DCash:
  - No decision to formally issue DCash.
  - March 2021 launch of a 12-month pilot to extend DCash throughout ECCU; rapid adoption prompting consideration of transition to official launch.
- Sveriges Riksbank, e-krona:
  - No decision to issue e-krona.
  - Proof of concept developed; government inquiry investigating role of state in digital payments system.
- BCDU, e-peso:
  - After ending pilot in 2018 and leadership changes, opted not to pursue second pilot due to priorities and lack of resources; potential second pilot in future.

### Heterogeneity and limits of inference
- Countries differ in context and project stage; sample small; insights may inspire further investigation but do not universally apply.

---

### Policy Goals of CBDC Projects

Overview
- Policy goals guide design and technology choices; differ by payment system characteristics, perceived domestic challenges, and mandates.
- Common themes: modernizing payment systems and future-proofing.
- Central bank laws often include promoting efficient, safe, and secure payment systems and conducting effective monetary policy.

Findings by policy objective
- Financial Inclusion
  - Definition: Access to appropriate and affordable financial services; associated with poverty reduction.
  - CBDC potential: increase access to digital payments and serve as gateway to wider financial services.
  - Jurisdictional findings:
    - Bahamas: Approximately 20 percent of the adult population estimated to have no bank account; geography (many islands) increases service costs.
    - ECCU: Island nations face difficulties achieving economies of scale; foreign banks withdrawing has reduced inclusion.
    - Uruguay: Sluggish development of financial services for a significant part of the population; Financial Inclusion Law enacted in 2014 mandated a digital option for essential payments.
    - China: Around 10 percent of the Chinese population lack access to basic financial services; PBOC sees extending inclusion as key for e-CNY.
- Access to Payments
  - Concern: private providers may not serve all segments; declining cash use may exacerbate access issues.
  - Jurisdictional findings:
    - Bahamas: Access regardless of age, social status, or location is a top goal.
    - Sweden: Broad access a top priority; elderly and some disabled may be adversely affected in a cashless society; Riksbank committed to ensuring cash remains available.
    - Canada: Emphasizes access despite near-universal inclusion; remote and low-income groups and those with impairments may be affected if cash availability falls below a certain level.
- Making Payments More Efficient
  - Rationale: High operational costs where cash and check use is high; CBDC could enable lower-cost digital payments.
  - Jurisdictional findings:
    - Bahamas and ECCU: High costs for physical and digital payments; Bahamas aims to integrate government agencies into Sand Dollar to lower costs.
    - China: Desire to improve payment services comparable to instant payments platforms.
- Ensuring Resilience of Payments
  - Importance: ability to pay and deliver government transfers under severe circumstances; critical for disaster-prone nations.
  - Jurisdictional findings:
    - Bahamas and ECCU: Resilience key due to frequent natural disasters; Sand Dollar pilot precipitated by 2019 hurricane; DCash expansion accelerated after 2021 volcano eruption.
    - China: Concerned about concentration risks in AliPay and TenPay/WeChat Pay; e-CNY intended as backup.
    - Sweden: Identified single points of failure; e-krona could serve as digital backup and part of civil defense.
    - Canada: Notes cash as backup; CBDC could be additional backup.
- Reducing Illicit Use of Money
  - Rationale: Cash anonymity facilitates illicit transactions.
  - Jurisdictional findings:
    - Bahamas: Reduction of illicit use is a top objective linked to AML/CFT; Bahamas was on FATF grey list in 2018 and de-listed in December 2020 after action plan.
- Monetary Sovereignty
  - Concern: foreign digital currencies or global stablecoins could impair central bank functions.
  - Jurisdictional findings:
    - Canada: CBDC consideration could be triggered if monetary sovereignty at risk (e.g., adoption of non-Canadian digital currency or stablecoin).
    - China: Investigating CBDC partly to secure monetary sovereignty.
- Competition
  - CBDC potential: increase competition directly and via open platforms for private providers.
  - Jurisdictional findings:
    - Sweden: e-krona may enhance competition in market with network effects favoring few large actors.
    - Canada: High concentration of providers may contribute to costs; declining cash could reduce competition.

Summary table (policy goals checkmarks preserved as in source)
- Bahamas: Financial Inclusion ✓✓✓✓✓ ; Access ; Efficiency ; Illicit Use of Money ; Resilience ; Sovereignty ; Competition
- Canada: Financial Inclusion ✓✓✓✓ ; Access ; Efficiency ; Illicit Use of Money ; Resilience ; Sovereignty ; Competition
- China: Financial Inclusion ✓✓✓✓✓✓ ; Access ; Efficiency ; Illicit Use of Money ; Resilience ; Sovereignty ; Competition
- ECCU: Financial Inclusion ✓✓ ; Access ; Efficiency ; Illicit Use of Money ; Resilience ✓ ; Sovereignty ; Competition
- Sweden: Financial Inclusion ✓✓✓ ; Access ; Efficiency ; Illicit Use of Money ; Resilience ; Sovereignty ✓ ; Competition
- Uruguay: Financial Inclusion ✓✓ ; Access ; Efficiency ; Illicit Use of Money ; Resilience ; Sovereignty ; Competition

---

### Operating Model

Overview — three conceptual models
- Unilateral CBDC: central bank performs all functions from issuance to end-user interaction.
- Intermediated CBDC: central bank issues money; non-central bank intermediaries (financial firms, payment service providers, mobile operators, state-owned intermediaries, cooperatives) interact with end users.
- Synthetic CBDC (sCBDC) / stablecoin: private actors issue money backed one-to-one by central bank assets (not a central-bank liability).
- Observed convergence: intermediated model widely explored; no central bank in this survey explored unilateral or pure synthetic models exclusively.

Central bank and private sector functions (intermediated model)
- Key functions and allocations:
  - Issuing: central banks explore CBDC as their liability; private firms may own technical systems enabling issuance.
  - Validation: DLT or traditional processes (identity checks, authenticity, funds availability); split possible between central bank and private entities.
  - Ledger update: centralized ledger (single owner/updater) or distributed ledger (DLT) with variants:
    - Central bank owns/updates entire ledger (example: Bahamas Sand Dollar).
    - Central bank owns ledger, private intermediaries update it.
    - Private intermediaries update parts conditional on central bank approval (example: Swedish e-krona proof of concept).
  - End-user interaction: KYC-AML/CFT, user interface, user data handling, customer service.
- System ownership: includes overall development, maintenance, functionality, and outsourced services.

Business model considerations
- Private intermediaries need profit potential (fees on payments observed as main model).
- Central banks likely to provide free or low-cost platform; none favor allowing intermediaries to gather payments data for commercial use.
- PBOC: does not charge intermediaries or users; intermediaries cannot charge individual users but may charge merchants.
- Central bank fee decisions affect cost-recovery and potential pass-through to users.
- Central bank revenues likely from seignorage; subsidizing adoption generally not seen as viable, though Riksbank considering subsidizing specific unprofitable functions (resilience, minority payment solutions).

---

### Design Features

Restrictions aimed at financial stability
- Commitment: not jeopardize financial stability; avoid sudden structural shifts.
- Two main categories of limits:
  - Restrictions on remuneration of CBDC (interest).
  - Quantitative restrictions on holdings and transactions.
- Current practice:
  - All circulating CBDCs/pilots designed with restrictions limiting competitiveness with bank deposits.
  - Three of six central banks have circulating CBDC (Bahamas, China, ECCU).
- Remuneration:
  - Bahamas, China, ECCU: do not pay interest on CBDC holdings.
  - Trade-off: zero percent interest could limit negative interest rate policy; alternative is lower-than-policy-rate interest or fees above thresholds (not yet tried).
  - Riksbank investigating legal issues related to paying interest on CBDC.
- Quantitative restrictions:
  - Used to limit competitiveness and foster inclusion.
  - Small CBDC holdings often allowed without identification to lower onboarding barriers.
  - Operational behavior: sending to a wallet at limit typically blocked; automatic transfer of excess holdings to bank account being developed (Bahamas).
  - Uruguay limited users and holdings for pilot manageability; ECCB plans to limit total DCash creation but currently issues on demand; Riksbank exploring tech options enabling limits.

Anonymity
- Trade-off: anonymity supports lawful privacy and inclusion but increases illicit-use risk.
- Common approach: tiered wallets with thresholds; lower-tier wallets allow greater anonymity, facilitating rollout where virtual ID is difficult.

Off-line capacity
- Importance: resilience in disasters and areas with patchy telecom access.
- Technical complexity and varied definitions of "off-line" (Bluetooth/local networks vs. prolonged blackouts).
- Jurisdiction experiences:
  - Bahamas: off-line functionality vitally important but local off-line networks vulnerable; contractor work underway to find alternative solutions; decision to explore alternatives major change from pilot.
  - PBOC: tested hardware-based e-CNY wallets and cards enabling proximity payments without Internet; mitigations include limited number of off-line payments before requiring online ledger sync, digital signatures, encrypted storage.
  - Sweden: proof of concept identified potential off-line solutions; testing continues on preventing double spending and ensuring authenticity.

Cross-border payments
- Motivation: cross-border payments costly and inefficient; CBDCs explored to enhance efficiency.
- Risks: retail CBDC across borders could increase currency substitution and macro vulnerability.
- Activities:
  - Canada, China, Sweden represented in Future of Payments Working Group (G20 roadmap).
  - PBOC: exploring retail CBDC cross-border; partnered with BIS Innovation Hub in multi-CBDC Bridge; three principles—no disruption, compliance with rules of connected countries, interoperability and currency conversion rather than single CBDC used on both sides.
  - Bahamas: Sand Dollar for domestic use only; foreign visitors may register low-limit accounts; plans to explore cross-border functionality within next three years.
  - ECCB: views cross-border CBDC favorably for remittances and trade; DCash is first trial of single CBDC used for cross-border payments within a monetary union (ECCU of eight nations).
- Main hurdles:
  - Technical interoperability and coordination on standards.
  - Legal and regulatory harmonization (data/privacy, tax, payments laws, capital flow measures).

Design features summary (Table 3 preserved)
- Bahamas
  - Carry Interest or Not: No
  - Quantitative Restrictions: Yes
  - Anonymity: For lower tier
  - Offline: Yes/exploring
  - Cross-Border Payments: Future project
- Canada
  - Carry Interest or Not: Undecided
  - Quantitative Restrictions: Undecided
  - Anonymity: Undecided
  - Offline: Exploring
  - Cross-Border Payments: International collaboration
- China
  - Carry Interest or Not: No
  - Quantitative Restrictions: Yes
  - Anonymity: For lower tier
  - Offline: Yes
  - Cross-Border Payments: Experimenting/international collaboration
- ECCU
  - Carry Interest or Not: No
  - Quantitative Restrictions: Yes
  - Anonymity: For lower tier
  - Offline: No
  - Cross-Border Payments: Future project
- Sweden
  - Carry Interest or Not: Undecided
  - Quantitative Restrictions: Exploring
  - Anonymity: Undecided
  - Offline: Exploring
  - Cross-Border Payments: International collaboration
- Uruguay
  - Carry Interest or Not: No
  - Quantitative Restrictions: Yes
  - Anonymity: Yes, but traceable
  - Offline: No
  - Cross-Border Payments: Possible future project

---

### Legal Foundations

Overview
- Legal framework must clarify central bank mandate and legal status of CBDC; many existing statutes predate digital money.
- Status in six jurisdictions (Figure 4 summary):
  - No Law Reform Envisaged at this Stage: Uruguay, Canada
  - Law Reform Under Preparation: Sweden, China, ECCU
  - Law Reform Enacted: Bahamas

Jurisdiction examples and law reforms
- Bahamas: Central Bank of Bahamas Act (2020) explicitly includes “electronic money” and grants power to issue electronic money and prescribe framework for public holding/usage.
- China: Draft revision to People’s Bank of China Law suggests currency includes physical and digital forms; draft prohibits “illegal CBDC” and gives PBC powers for payment infrastructure and cyber-resilience.
- ECCU/ECCB: Draft amendment to central bank act to define “digital currency,” attribute legal tender status, and clarify central bank’s sole right to issue.
- Sweden: Government inquiry launched after Riksbank petition; analyzing whether existing legal mechanisms suffice or new laws needed.
- Canada: Decided not to issue CBDC now; not pursuing law reform.
- Uruguay: Legal framework sufficient for 2018 pilot; legal amendments necessary for official roll-out.

Legal lessons and recommendations
- Initiate legal reflections early and build internal legal capacity; many projects initially driven by technology/advisors.
- Understand legal nature of CBDC under public and private law; consider external counsel and stakeholder dialogue.
- Most surveyed central banks advocate legal tender status for CBDC, but risks exist if technical access is limited.
- Flexibility: law reform often unnecessary during pilot, but needed for roll-out.
- Consider whether CBDC law reform can be vehicle for broader central bank charter reform.

---

### Project Implementation

Organizational changes at central banks
- Options: new committees, divisions, research centers, or reprioritizing existing divisions.
- Examples:
  - PBOC: specialized work team (2014) and Digital Currency Institute (2016) with regional subsidiaries.
  - CBOB: new unit under policy steering committee.
  - BOC: initially coordinated across two departments; 2020 research team formed.
  - Riksbank: project team and 2019 new division for proof of concept.
  - ECCB: no structural changes; internal working group drawn across departments.
  - BCDU: no organizational changes for e-peso pilot.

Internal staffing (central bank staff engaged, late 2021)
- CBOB, Sand Dollar: 15
- BOC: 50
- PBOC, e-CNY: 300
- ECCB, DCash: 12
- Riksbank, e-krona: 20
- BCDU, ePeso: 0 (10 during pilot)

Pilot design and results
- Pilots vary by time and scope limits; common uses: manage reputational risk, test technology, and adapt to events.
- Uruguay e-peso (Nov 2017–Apr 2018)
  - Pilot duration: six months; total issuance 20 million e-pesos; max 10,000 end-users.
  - End-of-pilot: all e-pesos cashed in and destroyed.
  - Private sector involvement limited; no commercial bank participation.
- CBOB Sand Dollar
  - Pilot launched Dec 2019 (planning >3 years).
  - Test areas: Exuma and Abaco Islands; pilot included ~2,000 wallets.
  - Peak launch staff ~35; current central bank full-time staff 15.
  - Off-line payment solution required major revision from pilot experience.
- PBOC e-CNY
  - By Oct 8, 2021: >123 million individual wallets; ~9.2 million firm wallets.
  - Trials in >10 cities/regions; extensive features tested (ID, off-line, programmability).
  - Subsidiaries in Shenzhen, Suzhou, Shanghai; local authority collaboration and lotteries used for uptake.
- ECCB DCash
  - Rolled out to Antigua and Barbuda, Grenada, Saint Kitts and Nevis, Saint Lucia in Mar 2021; 12-month pilot; DCash issued on demand with total limit announced.
  - Initial success criteria: 4,000 end-users and 35 merchants per country; goals adjusted per country.
  - COVID-19 and volcano eruption in St. Vincent and the Grenadines altered and accelerated plans; now considering formal launch.

User recruitment and incentives
- Information campaigns common; financial incentives used:
  - Uruguay: first 1,000 users received 1,000 e-pesos (approximately $23); monthly awards for active users.
  - PBOC: lotteries funded by local authorities offering free e-CNY.
  - ECCB: rebate incentive—percentage of expenses rebated in DCash at end of day for registered merchants.

Stakeholder communication
- Stakeholders: users, private intermediaries, incumbent payment providers, government agencies, representative bodies.
- Practices:
  - CBOB: partnered with communication/marketing experts; surveys and forums; noted need for more government stakeholder engagement.
  - PBOC and ECCB: public information campaigns; face-to-face intermediary interactions and market research.
  - BCDU: educational campaign.
  - BOC and Riksbank: no organized campaigns; Riksbank emphasizes openness via publications, conferences, and calls for comments; petitioned Parliament leading to 2021 government inquiry.

Major challenges
- Lack of precedents and standards.
- Resource constraints (PBOC, Uruguay, ECCB).
- Unwillingness to adopt digital payments due to safety/privacy distrust.
- Legal issues requiring amendments.
- Cybersecurity risks.
- Technological uncertainty and scalability concerns (DLT scalability questioned by ECCB).

Key insights (staff perspectives)
- Extensive market research recommended (CBOB).
- Strong collaboration with private intermediaries necessary (CBOB, PBOC).
- Technology neutrality and hybrid systems favored (PBOC); favor simplest appropriate tech (BCDU).
- Cross-border efforts should follow principles of no disruption, compliance, interoperability (PBOC).
- Anonymity/privacy trade-off cannot allow full anonymity for all transactions (PBOC).
- Early and open public communication important (Riksbank).
- CBDC introduction is also a cultural process (BCDU).

---

### Conclusions

Context and convergence
- No universal case or recipe for CBDC; country context and policy goals crucial.
- Convergence observed:
  - All six central banks explored intermediated operational model.
  - Countries seek balance between preserving traditional monetary/financial system aspects and updating central bank roles.
  - All circulating CBDCs have design features limiting competition with bank deposits.

Open issues and obstacles
- Sustainable business models for cost recovery and private-sector incentives remain unresolved.
- Off-line capability development and technology choice (including DLT limits) are open challenges.
- Costs and rapid technology evolution complicate decision-making.

Pragmatic technology stance
- Hybrid approaches and pragmatic neutrality (PBOC-led trend): centralized and distributed technologies can be used for different purposes.

Pilots and rollout
- Pilots serve as policy tools; dividing line between pilot and official launch can be blurred.
- Officially launched CBDC can be upgraded post-launch; pilots can lead to “soft launches.”

Need for cooperation and information-sharing
- Early stage of exploration; limited portability of experiences across countries.
- Increased international information-sharing and cooperation important going forward.

*ftnea2022004 - 8. Conclusions*

### 1.  Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

### 1. Introduction

### Scope and purpose
- Central banks are increasingly pondering whether to issue their own digital currencies to the general public, so-called retail central bank digital currency (CBDC).
- The majority of IMF member countries are actively evaluating CBDCs, with only a few having issued CBDCs or undertaken extensive pilots or tests.
- Purpose of the paper: to identify and share insights, lessons, and open questions from a handful of countries at the frontier of CBDC work; the paper is not an evaluation of jurisdictions’ courses of action but a study and discussion of their key experiences and lessons.
- Information basis: the paper studies six advanced CBDC projects drawing on collaboration and exchanges with the respective central banks; unless a specific published source is cited, all information stems from interviews and workshops with members of CBDC project teams in each jurisdiction. These central banks were given the opportunity to read and comment on the text before publication.

### Selection criteria for the six CBDC projects studied
- Projects fulfill at least one of the following criteria:
  - A CBDC is already issued. Selected project: Central Bank of The Bahamas (CBOB).
  - A pilot CBDC has been or is being tested involving actual households and firms. Selected projects: People’s Bank of China (PBOC), Eastern Caribbean Central Bank (ECCB), and Banco Central de Uruguay (BCDU).
  - A CBDC project has been brought onto the country’s political agenda and is being analyzed by government or parliamentary bodies outside of the central bank. Selected project: Sveriges Riksbank.
  - The central bank has carried out a CBDC project and decided against issuing a CBDC for the time being. Selected project: Bank of Canada (BOC).

### Heterogeneity and limits of inference
- These countries have different national contexts and their CBDC projects are at different stages of development; therefore, the information central banks can provide differs and what can be gleaned does not necessarily apply elsewhere.
- The sample remains small and country circumstances differ widely; insights may nevertheless inspire further investigation and help other countries build on these experiences.

### Structure of the paper (primary considerations for a CBDC project)
- The paper’s structure is based on the primary considerations for a CBDC project and summarized graphically in Figure 1. All considerations should be viewed as being carried out with sound processes for risk identification and mitigation.
- Major sections covered:
  - Policy Goals
  - Operating Model
  - Design Features
  - Technology
  - Legal Foundations
  - Project Implementation

### Box 1 — Current status of the six CBDC projects (exact reported facts)
- CBOB, Sand Dollar:
  - The Sand Dollar was officially launched in October 2020.
  - In late 2021, there were around 20,000 active Sand Dollar wallets in a population of about 400,000, and functions are continuously being developed.
- BOC:
  - The BOC has not found a pressing case for a digital currency given the present state of the Canadian payments system.
  - However, it continues to build the technical capacity to issue a CBDC, and monitor developments that could increase its urgency.
- PBOC, e-CNY:
  - No formal decision has been taken to launch the e-CNY.
  - The PBOC runs a pilot in parallel in different regions.
  - By October 2021, there were over 123 million e-CNY wallets registered with individuals and about 9.2 million wallets held by firms—a rapid increase from approximately six million active e-CNY wallets in April 2021.
  - In a population of nearly one and a half billion, the share of e-CNY users is now approaching 10 percent.
- ECCB, DCash:
  - No decision has been made to formally issue DCash.
  - In March 2021, the ECCB launched a pilot program to successively extend DCash throughout the countries of the Eastern Caribbean Currency Union (ECCU) and run the program for 12 months.
  - Given its rapid adoption, ECCB is now considering transitioning to an official CBDC launch.
- Sveriges Riksbank, e-krona:
  - No decision has been made to issue the e-krona.
  - The Riksbank has developed a proof of concept and is exploring technological and policy angles of CBDC.
  - A government inquiry is investigating the role of the state in the digital payments system, including the potential role of a CBDC.
- BCDU, e-peso:
  - After ending a pilot in 2018, the BCDU has changed leadership and has opted to not pursue a second pilot due to other priorities and a lack of resources.
  - Potentially, a second pilot will be launched in the future.

### Roadmap of the paper’s coverage
- The paper first explores the policy goals of different jurisdictions.
- It then reviews operational models: who issues and distributes CBDC and the respective roles of the central bank and the private sector.
- It turns to design features of CBDC, including measures to mitigate risks and options for cross-border payments.
- It considers technology options available to jurisdictions.
- It moves to the legal foundations needed for CBDC.
- The last section examines processes for exploring and testing CBDC, including organizational choices, staffing, stakeholder communication, pilot design, major challenges, and key insights identified by the jurisdictions themselves.

*Source: Behind the Scenes of Central Bank Digital Currency — 1. Introduction (excerpt).*

### 2. Policy Goals of CBDC Projects

### 2. Policy Goals of CBDC Projects

### Overview
- Policy goals for CBDC guide design and technology choices and differ across jurisdictions based on payment system characteristics, perceived domestic challenges, and mandates.
- Common overarching themes across reviewed central banks: modernizing payment systems (increasing digitalization) and future-proofing (updating extensively digitalized systems to counter risks from continuous innovation).
- Central bank laws often establish functions such as promoting efficient, safe, and secure payment systems and conducting effective monetary policy, both relevant to CBDC.

### A. Financial Inclusion
- Definition: Access to appropriate and affordable financial services; associated with poverty reduction.
- CBDC potential: Facilitate financial inclusion by increasing access to digital payments and serving as a gateway to wider financial services.
- Jurisdictional findings:
  - Bahamas: Approximately 20 percent of the adult population is estimated to have no bank account; geography (many islands) increases service costs.
  - ECCU: Island nations face difficulties in achieving economies of scale; foreign banks withdrawing has reduced inclusion.
  - Uruguay: Sluggish development of financial services for a significant part of the population; government mandated a digital option for essential payments (Financial Inclusion Law enacted in 2014).
  - China: Around 10 percent of the Chinese population still lack access to basic financial services; some local financial institutions have difficulties digitalizing. The PBOC sees extending inclusion as a key policy goal for the e-CNY.

### B. Access to Payments
- Distinction: Related to, but not identical with, financial inclusion; even highly inclusive countries can face access issues.
- Drivers of concern: Private providers may not find serving all segments profitable; declining cash use may exacerbate access issues.
- Hurdles: Shortage of cash, firms refusing cash, lack of or recurring digital infrastructure disturbances.
- Jurisdictional findings:
  - Bahamas (CBOB): Lists access to payments—regardless of age, social status, or location—as a top goal (CBOB (2019)).
  - Sweden (Riksbank): Ensuring broad access to payments is a top priority for the e-krona; elderly and people with certain disabilities identified as potentially adversely affected in a cashless society. The Riksbank is committed to ensuring cash will still be available (Sveriges Riksbank (2018); Sveriges Riksbank (2021a)).
  - Canada (BOC): Emphasizes access despite near-universal inclusion; groups in remote areas, low-income individuals, and those with impairments may be affected if cash availability falls beneath a certain level (BOC (2020)).

### C. Making Payments More Efficient
- Rationale: High operational costs where cash and check use is high; existing digital payments can be relatively expensive.
- CBDC potential: Offer digital payments that are cheaper to operate; central banks’ non-profit nature could enable low-cost payment provision, subject to cost-recovery considerations.
- Jurisdictional findings:
  - Bahamas and ECCU: High costs for physical and digital payments. Bahamas aims to integrate government agencies into the Sand Dollar network to lower cash-based payment costs to unbanked citizens (CBOB (2019)).
  - China (PBOC): Desires to improve payment services as part of ongoing efforts comparable to rolling out instant payments platforms.

### D. Ensuring Resilience of Payments
- Importance: Ability to pay and deliver government transfers under severe circumstances, especially critical for disaster-prone nations.
- Jurisdictional findings:
  - Bahamas and ECCU: Resilience is a key goal due to frequent natural disasters; destruction of infrastructure and shipping impediments are concerns. Bahamas’ 2019 hurricane precipitated the Sand Dollar pilot; ECCB accelerated DCash expansion after a 2021 volcano eruption in St. Vincent and the Grenadines.
  - China (PBOC): Concerned about concentration risks in a market dominated by AliPay and TenPay/WeChat Pay; e-CNY intended to function as a backup to existing digital payment solutions.
  - Sweden (Riksbank): Identified single points of failure among dominant actors as risks; the e-krona could serve as an additional backup to digital payments and is part of modernizing civil defense (Utredningen om civilt försvar (2021)).
  - Canada (BOC): Notes cash as a backup when digital payments are nonfunctional; CBDC could serve as an additional backup (BOC (2020)).

### E. Reducing Illicit Use of Money
- Rationale: Cash features (anonymity, lack of audit trail) can facilitate illicit transactions (tax evasion, money laundering, terrorist financing).
- Jurisdictional findings:
  - Bahamas: Reduction of illicit use is a top objective for its CBDC, linked to strengthening AML/CFT. The Bahamas was put on the FATF grey list in 2018 and was de-listed in December 2020 after implementing an action plan (FATF (2020)).

### F. Monetary Sovereignty
- Concern: Adoption of foreign digital currencies or global stablecoins could impair central bank functions (monetary policy, lender of last resort).
- Jurisdictional findings:
  - Canada (BOC): Serious consideration of CBDC might be triggered if monetary sovereignty were at risk (e.g., adoption of non-Canadian digital currency or stablecoin) (BOC (2020)).
  - China (PBOC): Investigating CBDC in part to secure monetary sovereignty in a digital future (Mu (2021)).

### G. Competition
- CBDC potential: Increase competition directly by competing with existing payment forms and indirectly by enabling an open platform for private payment service providers, lowering entry barriers.
- Jurisdictional findings:
  - Sweden (Riksbank): Sees the e-krona as a potential way to enhance competition and market efficiency in a payments market with network effects favoring a few large actors (Sveriges Riksbank (2017, 2018); Soderberg (2019)).
  - Canada (BOC): High concentration of service providers may contribute to high payment costs; declining cash could reduce competition further, motivating monitoring and capacity building for a potential CBDC.

### H. Summary of Policy Goals (Jurisdictions’ Stated Policy Goals)
- Table 1 summary (policy goals checkmarks preserved as in source)
  - Bahamas: Financial Inclusion ✓✓✓✓✓ ; Access ; Efficiency ; Illicit Use of Money ; Resilience ; Sovereignty ; Competition
  - Canada: Financial Inclusion ✓✓✓✓ ; Access ; Efficiency ; Illicit Use of Money ; Resilience ; Sovereignty ; Competition
  - China: Financial Inclusion ✓✓✓✓✓✓ ; Access ; Efficiency ; Illicit Use of Money ; Resilience ; Sovereignty ; Competition
  - ECCU: Financial Inclusion ✓✓ ; Access ; Efficiency ; Illicit Use of Money ; Resilience ✓ ; Sovereignty ; Competition
  - Sweden: Financial Inclusion ✓✓✓ ; Access ; Efficiency ; Illicit Use of Money ; Resilience ; Sovereignty ✓ ; Competition
  - Uruguay: Financial Inclusion ✓✓ ; Access ; Efficiency ; Illicit Use of Money ; Resilience ; Sovereignty ; Competition
- Note: ECCU = Eastern Caribbean Currency Union.

*Source: ftnea2022004 - 2. Policy Goals of CBDC Projects (IMF Fintech Notes).*

### 3. Operating Model

### 3. Operating Model

### Overview: three conceptual operating models
- The overarching structure of how CBDC will be issued and circulated, and the roles of the central bank and the private sector, is referred to as the operating model.
- Three conceptual models:
  - Unilateral CBDC: the central bank carries out all functions in the payments system, from issuing the CBDC to distributing it, and interacting with end-users.
  - Intermediated CBDC: central bank issues money, but delegates functions to non-central bank intermediaries (financial firms, payment service providers, mobile phone operators, state-owned intermediaries, cooperatives) who interact with end users.
  - Synthetic CBDC (sCBDC) / stablecoin: non-central bank actors issue money that is backed one-to-one by central bank assets that they acquire from the central bank (hence not a central-bank-issued liability but sometimes considered an alternative to CBDC).
- These conceptual models are not mutually exclusive: central banks may combine models (for example, offering intermediated services while maintaining basic payment services via a unilateral model for universal access and resilience). An sCBDC may be issued by private firms alongside, or even backed by, CBDC.
- So far, there is convergence on the intermediated model; no central bank in this survey has explored the unilateral or synthetic CBDC models and the rest of the section focuses on the intermediated model.

### A. Central Bank and Private Sector Functions (intermediated model)
- Functions in a CBDC environment can be distributed between the central bank and private intermediaries; useful to distinguish the owner of the technical system from the executor of the function.
- Examples and practices:
  - The IT system intermediaries use to monitor users of the Sand Dollar relating to AML/CFT is owned by the CBOB to ensure a standardized approach.
  - In the Uruguay e-peso pilot, a private vendor owned and operated a technical system that converted pesos created by the central bank into e-pesos, making issuance a two-stage process.
  - In the e-krona proof of concept, the central bank owns and operates a notary node (ensuring money has not been spent before) while private intermediaries carry out remaining validations (e.g., checking authenticity of e-kronas).
- Key functions and how they may be allocated:
  - Issuing: central banks in the study explore models where CBDC are their own liability, like cash; a private company may, however, own technical systems enabling issuance.
  - Validation: includes DLT validation or traditional processes such as checking user identity, authenticity of money, and availability of funds; functions can be split between central bank and private entities.
  - Ledger update: records of monetary holdings updated after payments; ledgers can be centralized (single entity owner/updater — standard approach) or distributed (DLT).
    - DLT alternatives:
      - Central bank owns and updates entire ledger (example: the Bahamas Sand Dollar).
      - Central bank owns ledger, private intermediaries update it.
      - Private intermediary owns/updates part of ledger conditional on central bank approval (example: Swedish e-krona proof of concept, where intermediary updates after central bank notary checks).
  - End-user interaction functions:
    - KYC-AML/CFT: implementing Know Your Customer and AML/CFT requirements (customer due diligence aimed at combating illicit flows).
    - User Interface: means through which users interact/pay with CBDC holdings (e.g., mobile applications).
    - User Data: handling personal data of users.
    - Customer Service: helping users connect to CBDC, handling errors, solving issues.
- Table 2 summarizes allocations across six CBDC projects; distribution may change from pilot to formal launch (example: ECCB currently offers intermediaries a ready-made application for DCash wallets but expects intermediaries to develop their own user interfaces after formal launch).
- Note on system ownership: system owner responsibility includes overall development, maintenance, and functionality of the system, including outsourced services.

### B. The Business Model of CBDC
- The business model is a key concern for private firms and central banks:
  - Private intermediaries carrying out functions must be able to make a profit at least in the medium term.
  - Central banks (not-for-profit) must decide whether to seek cost-recovery for building the CBDC system or to subsidize adoption to meet policy goals.
- Observed consensus and positions:
  - Almost universal consensus among reviewed CBDC projects: main business model for private intermediaries is fees on payments.
  - Central bank role seen as providing a free or low-cost platform on which private intermediaries can operate.
  - None of the central banks favor allowing private intermediaries to gather payments data for commercial purposes.
  - The PBOC: does not charge intermediaries or users; intermediaries cannot charge individual users in the e-CNY project but intermediaries may charge merchants.
  - The PBOC views merchant charges as a substantial incentive for firms to enter the market while keeping fees in check.
  - The BOC: choice of business model is complex; one possibility is central bank providing a basic CBDC payment function to the public (possibly charging a fee). The Riksbank is also considering this approach.
- Cost-recovery and fee issues:
  - Whether a central bank should charge intermediaries for using the CBDC system ties to whether the central bank intends to recover development costs.
  - Risk: if central banks collect fees, intermediaries may pass costs downstream and raise payment prices, countering policy goals.
  - The BOC identifies covering costs as one of its most important areas of research.
  - Riksbank: charging intermediaries fees is difficult under current regulatory framework and may contradict a commitment to offering payments as a public good.
  - Revenues for the central bank would likely solely be in the form of seignorage.
  - Subsidizing adoption is currently not seen as a viable path by many, but the Riksbank is discussing subsidizing development costs for functions the private sector would not find profitable (examples: increasing payments resilience and developing payment solutions for minorities).

*Source: ftnea2022004 - 3. Operating Model.*

### 4. Design Features

### 4. Design Features

### A. Restrictions Aimed at Ensuring Financial Stability
- Central banks engaged in CBDC projects commit to not jeopardizing financial stability and avoiding sudden shifts to the structure of the financial system.
- Potential risks discussed in the literature:
  - Crowding out banks.
  - Facilitating bank runs.
- Two main categories of limits used to reduce competitiveness of CBDC versus bank deposits:
  - Restrictions on the remuneration of CBDC.
  - Quantitative restrictions on holdings and transactions of CBDC.
- Current practice and considerations:
  - All CBDCs currently circulating (official currency or pilot) are designed with restrictions limiting competitiveness versus bank deposits.
  - At the time of writing, only three of the six central banks in this study—the central banks of the Bahamas, China, and the Eastern Caribbean—have circulating CBDC.
- Restrictions on remuneration:
  - The Bahamas, China, and the ECCU currently do not pay interest on CBDC holdings to limit competition with bank deposits.
  - Policy trade-off: zero percent interest on CBDC could limit the ability to carry out a negative interest rate monetary policy.
  - Possible solution: pay an interest rate on CBDC that is consistently lower than the policy rate.
  - The Riksbank is investigating legal issues related to paying interest rates (whether positive or negative) on CBDC.
  - Alternative in literature: impose fees on transactions above a threshold (not yet tried in projects discussed).
- Quantitative restrictions:
  - All three active CBDC projects were designed with quantitative restrictions to explicitly limit competition with bank deposits and to foster financial inclusion.
  - Small CBDC holdings are often allowed without identification or KYC to lower onboarding thresholds.
  - Operational behaviors:
    - Sending to a wallet that has reached its specified limit is typically blocked (sender receives an error message).
    - CBDC holdings may be connected to a bank account to automatically transfer excess holdings (function under development in the Bahamas Sand Dollar).
  - Pilot-management role:
    - Uruguay limited number of users and e-peso holdings per user to make the pilot more manageable and reduce reputational risks.
  - ECCB DCash:
    - Plans to limit total amount of DCash that can be created; currently offered to meet demand with no decision yet on when to set a limit or how high.
  - Riksbank:
    - Exploring technological options that could allow quantitative restrictions; tested a payments card which carries a limited amount of e-krona.

### B. Anonymity
- Anonymity is a key trait of cash; digital payments threaten preference for anonymity for lawful uses and financial inclusion.
- Policy trade-off:
  - More anonymity increases risk of illicit use and can undermine AML/CFT measures.
- Common approach among the three active CBDC projects:
  - Tiered selection of wallets with different thresholds; lower-tier wallets allow greater anonymity.
  - Tiering creates policy synergies between anonymity, run-risk reduction, and financial inclusion.
- Practical implications:
  - Tiered wallets facilitate rollout into rural or disadvantaged areas where virtual identification is difficult.

### C. Off-Line Capacity
- Off-line payment capability supports resilience in crises (natural disasters, conflicts) and matters for areas with patchy telecom access.
- Technical complexity and varied definitions:
  - "Off-line" can mean off Internet but reliant on local networks (e.g., Bluetooth); prolonged blackouts or electromagnetic disturbances can affect local networks.
- Jurisdiction experiences:
  - The Bahamas:
    - Considers off-line functionality vitally important but encountered difficulties.
    - Local off-line networks (local redundancies to main telecom system) did not fully achieve policy goals; telecommunication towers were vulnerable to same weather conditions as main system and limited geographic reach.
    - CBOB working with contractor to identify alternative solutions; decision to explore alternative off-line solutions was the most significant change from pilot experience.
  - PBOC (China):
    - Tested different solutions; reports sufficiently safe and efficient off-line payments are now in place.
    - Solutions include hardware-based e-CNY wallets inside mobile phones or cards that can make payments to another mobile phone wallet in physical proximity without Internet.
    - To mitigate double spending and counterfeiting: each user can only perform a limited number of off-line payments before needing to go online to access the main ledger; uses digital signature and encrypted storage technologies.
  - Sweden (Riksbank):
    - Proof of concept has identified potential off-line solutions and is proceeding to test them.
    - Challenges include preventing double spending and ensuring authenticity of e-kronas while off-line.

### D. Cross-Border Payments Using CBDC
- Motivation:
  - Cross-border payments are generally costly and inefficient; CBDCs are being evaluated to enhance efficiency.
  - G20 has instigated collaboration among international organizations and central banks to explore CBDC role in cross-border payments.
- Current status of retail CBDC projects:
  - Carried out primarily for domestic purposes so far; technical experiments on wholesale CBDC for cross-border use have been conducted for several years.
  - Adverse macroeconomic implications possible if retail CBDC become available across borders (e.g., increased currency substitution and vulnerability to financial shocks).
- Activities by jurisdictions in study:
  - Canada, China, and Sweden are represented in the Future of Payments Working Group (stemming from the G20 roadmap).
  - PBOC:
    - Exploring retail CBDC for cross-border payments; partnered with BIS Innovation Hub and other central banks in the multi-CBDC Bridge project (experimental CBDC arrangement leveraging DLT).
    - States three principles for cross-border CBDC work:
      1. Principle of "no disruption" — avoid negative spillovers such as significant currency substitution.
      2. Compliance with rules and regulations of all connected countries, including capital flow management measures.
      3. Cross-border payments should involve interoperability across domestic CBDCs or between domestic CBDCs and incumbent payment systems rather than a single CBDC used on both sides of a border; prefers currency conversion of domestic CBDCs as payments cross borders.
  - The Bahamas:
    - Does not currently allow Sand Dollar to be used outside its borders; Sand Dollar intended exclusively for domestic purposes.
    - Cross-border payments must take place through commercial banks in traditional non-CBDC Bahamian dollars.
    - Foreigners can own and pay with Sand Dollars when visiting Bahamas after registering for an account with a low limit on balances and monthly transactions.
    - Central bank plans to explore cross-border functionality for the Sand Dollar within the next three years.
  - ECCB:
    - Views CBDC for cross-border payments favorably due to importance of trade and remittances.
    - Begun discussions with other regional central banks regarding interoperability with legacy payment systems and platforms to enable remittances and trade.
    - DCash technically represents the first trial of a single CBDC used for cross-border payments within a monetary union (the ECCU consists of eight nations with the same central bank).
- Main hurdles raised by staff at the six central banks:
  - Technical interoperability:
    - Lack of coordination on technology and messaging standards could make retrofitting CBDC for cross-border use costly and complex.
    - Collaboration on G20 roadmap and decentralized compatibility between DLT systems may help.
  - Legal and regulatory harmonization:
    - Domestic legal investigations conducted; harmonization may be needed on data/privacy treatment, tax and payments laws, and capital flow management measures.

### E. Summary of Design Features (per the six central banks in the study)
- Table 3 content (design features preserved exactly as presented):
  - Bahamas
    - Carry Interest or Not: No
    - Quantitative Restrictions: Yes
    - Anonymity: For lower tier
    - Offline: Yes/exploring
    - Cross-Border Payments: Future project
  - Canada
    - Carry Interest or Not: Undecided
    - Quantitative Restrictions: Undecided
    - Anonymity: Undecided
    - Offline: Exploring
    - Cross-Border Payments: International collaboration
  - China
    - Carry Interest or Not: No
    - Quantitative Restrictions: Yes
    - Anonymity: For lower tier
    - Offline: Yes
    - Cross-Border Payments: Experimenting/international collaboration
  - ECCU
    - Carry Interest or Not: No
    - Quantitative Restrictions: Yes
    - Anonymity: For lower tier
    - Offline: No
    - Cross-Border Payments: Future project
  - Sweden
    - Carry Interest or Not: Undecided
    - Quantitative Restrictions: Exploring
    - Anonymity: Undecided
    - Offline: Exploring
    - Cross-Border Payments: International collaboration
  - Uruguay
    - Carry Interest or Not: No
    - Quantitative Restrictions: Yes
    - Anonymity: Yes, but traceble
    - Offline: No
    - Cross-Border Payments: Possible future project

*Source: Central bank staff and published sources.*

### 6. Legal Foundations for CBDC

### 6. Legal Foundations for CBDC

### Overview
- CBDC requires a legal framework that clarifies whether the central bank has the mandate to issue CBDC and what status it would have legally. Existing legal frameworks were typically enacted in a pre-digital age, and investigating CBDC therefore also entails ascertaining whether law reform is necessary to ensure that a CBDC can be issued by the central bank.
- The status of the six surveyed jurisdictions is summarized in Figure 4 (see jurisdiction list below).

### Jurisdiction examples and law reforms
- Bahamas
  - Enacted a revised legal framework, the Central Bank of Bahamas Act, in 2020.
  - The currency issuance function is broadly worded, and the definition of “currency” explicitly includes not only banknotes and coins but also “electronic money” issued by the Central Bank.
  - The Act specifically grants the Central Bank the power to issue currency in the form of “electronic money.”
  - The Act grants the Central Bank regulatory powers to prescribe “the framework under which electronic money issued by the Central Bank...may be held or used by the public.”
- China
  - Preparing for a general revision on People’s Bank of China Law (draft), which suggests that Chinese currency includes both physical and digital forms (e-CNY) and thus confirm the legal tender status of e-CNY.
  - The draft law provides the central bank with the broad power to plan, organize, and supervise the payment system and financial infrastructures.
  - The Central Bank will have responsibility to coordinate the work on national financial security, with the goal of developing a cyber-resilient CBDC.
  - The draft law explicitly prohibits and imposes fines on the production, sale, and circulation of “illegal CBDC.”
- Eastern Caribbean Currency Union (ECCU) / ECCB
  - The ECCB has prepared a draft amendment to its central bank act to establish the legal foundation of CBDC by extending the definition of “currency” to “digital currency.”
  - The draft amendment explicitly attributes legal tender status to digital currency and clarifies the central bank’s sole right to issue digital currency.
- Sweden
  - Legal questions are being investigated in a government inquiry launched after a petition was sent to Parliament by the Riksbank in 2019.
  - The central bank is actively analyzing whether existing means of payment and legal mechanisms would be fit for e-krona operations or whether new types of assets or legal mechanisms should be created by law.
- Canada
  - Having decided not to issue a CBDC at this time, Canada is not currently looking into law reform.
- Uruguay
  - When Uruguay completed its six months e-Peso pilot in 2018, the legal framework was considered sufficient at the time for the central bank to carry out the testing without the need for legal amendments.
  - The central bank indicated that legal amendments would be necessary for an official roll-out of the e-peso.

- Figure 4. Status of Law Reforms in the Six Jurisdictions (as presented)
  - No Law Reform Envisaged at this Stage: Uruguay, Canada
  - Law Reform Under Preparation: Sweden, China, ECCU
  - Law Reform Enacted: Bahamas

### Legal challenges identified and lessons learned
- Law follows technology
  - Operating and legal design of CBDC was often initially driven by technological developments, frequently under advice of consulting firms.
  - Recommendation: central banks should initiate legal reflections very early and build sufficient internal legal capacity in legal departments.
- Understanding the legal nature of CBDC
  - CBDC poses significant legal challenges under public and private law; fundamental issues remain in some countries (for example, rights of holders subsequent to the insolvency of authorized providers).
  - Several central banks relied on external counsel to develop the legal-regulatory framework for CBDC.
  - Recommendation: combine internal capacity building with a needs assessment for external counsel and maintain close dialogue with financial intermediaries to understand impacts on business models.
- Legal tender status
  - Most surveyed central banks advocate granting legal tender status to CBDC despite limited universal access to technical means to receive CBDC (such as devices or internet access).
  - This could be possible under a fairly “relaxed” legal conception of legal tender status, with ample space for contractual derogations.
  - Risk: without wide acceptance and circulation of CBDC, the reputation of the issuing central bank would be at risk.
  - Some jurisdictions have started a fundamental debate on the role of legal tender currency.
- Flexibility in preparatory vs. final phase
  - Many central banks saw no need for law reform during the pilot phase, but viewed law reform as necessary for the roll-out (final phase).
  - Maintaining flexibility during the pilot phase may be useful, particularly where CBDC is not yet issued as an actual liability of the central bank and design features may change.
- Specific vs. general law reform
  - Modifying central bank law and other laws only to strengthen the legal basis for CBDC issuance may be the fastest route.
  - A broader reform of the central bank’s charter (as in the Bahamas) can address other legal issues simultaneously, which may slow the process but strengthens the overall legal framework.
  - Recommendation: assess whether CBDC-related law reform could be an opportunity to introduce other legal amendments.

*Sources: Central banks and IMF staff.*

### 7. Project Implementation

### 7. Project Implementation

### A. Organizational Changes at the Central Bank
- Central banks investigating CBDC must decide whether to make formal organizational changes or work with existing structures; options observed include new committees, divisions, or research centers, or reprioritizing existing divisions.
- Examples from the six jurisdictions:
  - PBOC: set up a specialized work team in 2014; in 2016 created the Digital Currency Institute of the People’s Bank of China (PBCDCI) with subsidiaries across geographical areas to help organize e-CNY pilots.
  - CBOB: created a new unit devoted to developing the Sand Dollar under a policy steering committee representing different departments.
  - BOC: initially used resources from two departments coordinated by a fintech senior officer; in 2020 formed a research team to investigate technology and monitor conditions that could trigger the need to proceed.
  - Riksbank: began with a project team from different departments; in 2019 created a new division devoted specifically to developing an e-krona proof of concept while keeping CBDC policy analysis in the payments department.
  - ECCB: did not change organizational structure; draws personnel from across departments to form an internal working group.
  - BCDU: did not initiate organizational changes while conducting the e-peso pilot.

### B. Internal Staffing
- Staffing levels vary with degree of outsourcing and pilot size.
- Reported staff engagement in late 2021 (central bank staff only):
  - CBOB, Sand Dollar: 15
  - BOC: 50
  - PBOC, e-CNY: 300
  - ECCB, DCash: 12
  - Riksbank, e-krona: 20
  - BCDU, ePeso: 0 (10 during pilot)
- Observations:
  - PBOC staff working on e-CNY grew from around 40 to around 300 (does not include private-sector employees collaborating with the PBOC).
  - Sand Dollar: at peak during launch employed 35 people at varying levels of time commitment; currently 15 people work full-time on Sand Dollar.
  - ECCB manages DCash with 12 people, all of whom also have other duties; substantial technical expertise from outside supported the project.
  - Uruguay e-peso pilot employed five full-time and five part-time employees (central bank staff only; private sector personnel likely considerably larger).

### C. Organization and Design of Pilots
- Three main aspects covered: general organization, user recruitment and results, and incorporation of results.
- Pilot design factors:
  - Limitation by time (clear termination date) and/or scope (number of users or amount issued).
  - Goals and ability to revisit them during the pilot; pilots can be extended or adapted to support policy goals (e.g., economic recovery after disasters).
- Four pilots summarized (in order of first launch):
  - Uruguay e-peso:
    - Planning began in 2016; pilot ran from November 2017 to April 2018.
    - Pilot duration fixed at six months; all e-pesos owned by test users cashed in and destroyed at end.
    - Total issuance set at 20 million e-pesos.
    - No more than 10,000 end-users could participate by downloading an app.
    - Functional involvement of private sector was limited; functions were distributed among a group of firms primarily interested in testing technologies; e-peso was not an open platform and commercial banks were not involved.
  - CBOB Sand Dollar:
    - Pilot launched December 2019 after more than three years of research and planning.
    - Initial test area: Exuma District (high mobile phone usage) to maximize test users; second area: Abaco Islands (February 2020) to test off-line payments and support post-hurricane recovery.
    - Pilot included around 2,000 wallets.
    - Around 35 persons at the central bank were involved in the launch.
    - COVID-19 made Abacos tests more difficult but did not change pilot plans.
  - PBOC e-CNY:
    - Scale: By October 8, 2021, over 123 million e-CNY wallets were held by individuals and around 9.2 million wallets were held by firms.
    - PBCDCI created subsidiaries in Shenzhen, Suzhou, and Shanghai and collaborates with local authorities, private intermediaries, and technology firms.
    - Trials conducted in more than 10 cities and regions; scale allowed testing core payments processing and ancillary features (identification, off-line payments, programmability); trials extended increasingly to rural areas to support regional economic development goals.
  - ECCB DCash:
    - Rolled out to four countries in the ECCU in March 2021: Antigua and Barbuda, Grenada, Saint Kitts and Nevis, and Saint Lucia.
    - Pilot scheduled to run for 12 months; all DCash to be cashed in and destroyed after pilot.
    - DCash issued on demand as users grew; central bank announced a total limit on issuance.
    - Initial success criteria: DCash to reach 4,000 end-users and 35 merchants per country in the ECCU; goals adjusted with experience to reflect country differences.
    - External events that altered the plan:
      - COVID-19 increased demand for DCash and online shopping; ECCB expanded pilot to include online purchases using a web browser.
      - Volcano eruption in St. Vincent and the Grenadines prompted acceleration of the pilot in that area to assist recovery.
    - ECCB now considers formally launching the CBDC and extending access to all countries in the ECCU rather than ending the pilot, given demand.
- Recruitment of users:
  - Information campaigns emphasized across pilots; financial incentives used in some cases.
  - Uruguay e-peso: technology partner Roberto Giori paid for information campaign and funded incentives: the first 1,000 users received 1,000 e-pesos (approximately $23) for free, and 20 awards of 1,000 e-pesos were granted to the most active users for each month of the pilot.
  - PBOC: launched lotteries in collaboration with local authorities offering free e-CNY; local authorities provided funding.
  - Bahamas and ECCU: relied on public information campaigns stressing convenience and safety; ECCB added a rebate incentive (percentage of expenses rebated in DCash at end of day for payments made in DCash at registered merchants).
- Results and incorporation:
  - Pilots identify areas needing more testing and can motivate new pilots or extensions.
  - BCDU concluded a potential second Uruguay pilot would need different principles, including multiple vendors and participation of commercial banks.
  - CBOB: Sand Dollar pilot delivered insights into user motivations and firm participation; prompted increased local communication and education; highlighted need to increase interoperability with retail banking to ease conversion between deposits and Sand Dollars; revealed planned off-line payment solution did not work as intended and was a major revision in the official launch.
  - PBOC: reports being very pleased with e-CNY pilot results; enabled testing of off-line capacity, facial recognition payments, tap-and-go; surveys among test users and the public reported as very favorable.

### D. Stakeholders and Public CBDC Communication
- Potential stakeholders include users, private intermediaries, incumbents in payments and financial markets, government agencies (tax agencies, social welfare agencies, ministries of finance), representative political bodies, and governments.
- Legal changes often required for CBDC introduction; approvals beyond the central bank are typically needed.
- Communication is key to build trust and adoption.
- Jurisdictional practices:
  - CBOB: partnered with communication experts and marketing agencies; accompanied pilot and launch with surveys and market research; invited industry representatives to discussion forums; promoted benefits to commercial banks but noted more engagement with government stakeholders would have been beneficial.
  - PBOC and ECCB: organized public information campaigns; PBOC’s intermediaries conduct face-to-face interactions; ECCB partnered with market research agencies for real-time feedback.
  - BCDU: e-peso accompanied by an educational campaign.
  - BOC and Riksbank: have not engaged in organized information campaigns. Riksbank emphasizes openness about its project—regular publications, participation in conferences, and calls for comments (second e-krona report in 2018 accompanied by call for comments published on bank’s website).
  - Riksbank petitioned Swedish Parliament in 2019 to create a government inquiry into the future role of the state in the digital payments market; Parliament approved the petition and the inquiry was launched in 2021.

### E. Major Challenges and Hindrances
- Common themes identified by central banks:
  - Lack of precedents: difficulty designing projects with little established standards; value of continuing research, learning, and experimentation.
  - Lack of resources: CBDC projects are resource-intensive and scale increases resource needs; PBOC cites resources as a constraint; Uruguay has not launched a second e-peso pilot partly due to resource constraints; ECCB cited financial cost of DCash as a major obstacle.
  - Unwillingness to adopt digital payments among some of the population: distrust about safety and privacy (CBOB reported concerns that money would not be safe if converted to Sand Dollar and worries about privacy).
  - Legal issues: need to amend or change laws and regulations is a key obstacle.
  - Cyber security: PBOC warned of substantial cyberattack risks if e-CNY becomes a crucial payments system; creating acceptable cyber security is a main challenge.
  - Technological uncertainty: choosing the best technology remains challenging as technology evolves; ECCB uncertain whether DCash’s DLT technology is sufficiently scalable and is open to considering another model.

### F. Key Insights (staff perspectives)
- Market research: CBOB stresses extensive market research to understand user needs, based on Sand Dollar experiences.
- Collaboration with private intermediaries: CBOB emphasizes strong collaboration and open communication with private firms that have face-to-face contact with end-users; PBOC echoes this point.
- Technology neutrality: PBOC advocates neutrality; e-CNY designed as a hybrid system with centralized core compatible with DLT or other technologies intermediaries choose to use. PBOC’s recommendation: no technology is perfect and openness to different technologies is key. BCDU followed the principle of favoring the simplest and most appropriate technology for the CBDC’s purposes in the e-peso pilot.
- Cross-border payments: PBOC stresses exploring cross-border payments with CBDC and adhering to principles of “no disruption, compliance, and interoperability.”
- Anonymity/privacy trade-off: PBOC emphasizes managing tension between anonymity and privacy; full anonymity for all transactions cannot be considered.
- Public access to information: Riksbank highlights importance of openness about CBDC work—issuing CBDC concerns society’s payments system and understanding takes time; communication with public and decision-makers should begin early.
- Non-technical aspects: BCDU stresses that CBDC introduction is also a cultural process that must consider cultural aspects of users and preferences for the characteristics of money.

*Source: ftnea2022004 - 7. Project Implementation.*

### 8. Conclusions

### 8. Conclusions

### Context-specific design and no universal recipe
- Six CBDC pioneer projects illustrate that individual country context and policy goals are crucial for CBDC design and implications.
- There is no universal case for CBDC, and there is no universal design or recipe to implement CBDC.

### Open issues and obstacles
- CBDC remains in its infancy with open issues and commonly identified obstacles, including:
  - The nature of sustainable business models that will ensure cost recovery and provide sufficient incentives for private sector participation.
  - Pushing the boundaries of innovation to allow for features such as off-line capacity.
  - The choice of technology, including the use cases and limits of DLT.
  - Key difficulties include making choices in a very new and rapidly evolving field and costs associated with the development process.

### Pragmatic technology stance and hybrid approaches
- A new trend, spearheaded by the PBOC, is a pragmatic view of technology:
  - The choice between centralized and distributed technology does not need to be either-or.
  - Central banks could adopt CBDCs that utilize different technologies for different ends.

### Convergence across jurisdictions
- Areas of convergence despite differing country contexts:
  - All central banks in the study have explored the intermediated operational model.
  - Countries are seeking a balance between preserving key aspects of the traditional monetary and financial system while updating the role of central banks in the digital era.
  - All CBDCs currently in circulation have design characteristics that limit competition with bank deposits.

### Policy trade-offs and synergies
- Examples of trade-offs and synergies identified:
  - The relationship between anonymity and illicit use of money presents a policy trade-off.
  - There are policy synergies between anonymity, risk reduction, and financial inclusion.
- Managing trade-offs and leveraging synergies may become an area of increased central bank attention.

### Pilots as policy tools and soft launches
- Pilot designs vary from strictly limited in time, scope, and goals to more open-ended.
- Pilots are used as policy tools; the dividing line between an open-ended pilot and an officially launched CBDC is not always clear-cut.
- An officially launched CBDC can continue to be upgraded and developed after launch; a pilot could therefore lead to a “soft launch.”

### Early stage, limited portability, and need for cooperation
- CBDC exploration remains at an early stage; not all country experiences can be easily ported abroad.
- There are still open questions; CBDC remains uncharted territory with both challenges and opportunities.
- Increased international information-sharing of insights from individual CBDC projects and cooperation on policy and design issues will be important going forward.
- This paper constitutes an early contribution to the ongoing international process.

*ftnea2022004 - 8. Conclusions*

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_Source: https://www.imf.org/-/media/files/publications/ftn063/2022/english/ftnea2022004.pdf_