## ftnea2025003 ## Source details **Canonical URL:** [ftnea2025003](https://www.imf.org/-/media/files/publications/ftn063/2025/english/ftnea2025003.pdf) ## Other formats - [Markdown version](/-/media/files/publications/ftn063/2025/english/ftnea2025003.pdf.md) - [Structured JSON version](/-/media/files/publications/ftn063/2025/english/ftnea2025003.pdf.json) --- ### II. The Novelty of Token-Based CBDC under Private Law — Key legal features - Token-based CBDC incorporates a monetary claim on the central bank in a digital token: - CBDC will represent a direct legal relationship (claim) of the holder of the token with the issuing central bank. - Issuing central banks book issued banknotes as a liability on their balance sheet. - Under accounting law and standards, a reporting entity can only book a liability if it meets the applicable “recognition criterion.” A typical such criterion will state that “a liability is a present obligation of the entity arising from past events, which is expected to result in an outflow from the entity of resources resulting in an economic benefit” (IASB). - This means that CBDC, as with banknotes, incorporates an obligation of the issuing central bank and thus a claim of the holder on that central bank. - Conceptual and doctrinal observations: - The law historically treats a “token” as a carrier or “sign of proof”; incorporation of claims into an immaterial digital token is unprecedented. - The legal concept of token must be distinguished from the technological concept; legal acceptance of a token can depend on design and legislative recognition. - Transfer and account relationship: - Control of the token will essentially amount to control over the CBDC—the transfer of the token can be legally accomplished without instruction to, and action by, the issuing central bank. - Token-based CBDC entails no current-account legal relationship between the central bank and the holder (this distinguishes it from account-based CBDC). ### How ownership rights in token-based CBDC are held and evidenced (registries/ledgers and wallets) - Registries/ledgers — legal roles and options: - Technological reality: tokens typically held on addresses on a registry/ledger and controlled by private keys. - Two legal approaches to the ledger’s role: - Constitutive role: the ledger is constitutive of ownership rights; ownership exists only if reflected on the ledger. - Indicative role: the ledger is indicative (a presumption) of ownership; ownership can be proven and transferred outside the ledger. - Interaction with asset classification: - Constitutive approach may conflict with a hybrid (part-tangible) classification because tangibles can be transferred without registration. - Indicative approach is compatible with hybrid, sui generis, or pure-intangible categorizations. - Practical dependence: the legal meaning of the ledger depends on CBDC design (holding structures, intermediaries, omnibus accounts) and contractual frameworks among central bank, intermediaries, and users. - Wallets — custodial and holding structures: - Three holding structures central banks could adopt: - Direct-holder-controlled (analogous to digital cash): holders control tokens directly; service providers may assist. - Central bank–based holding: direct technical and legal relationship between central bank and user; central bank may hold tokens while users access via an interface. - Indirect holding (intermediated custodial model): holders use intermediaries’ custodial wallets; the claim on the central bank remains direct. - Custodial-wallet evidentiary issues: - If CBDC can truly be held in custody, custodial wallets should reflect ownership rights (including evidentiary protection in insolvency). - Intermediaries will likely hold omnibus positions on ledgers; legal frameworks must recognize holders’ ownership of wallet balances and reconcile ledger registrations with wallet balances. ### Transfer of token-based CBDC — finality, perfection, Nemo Dat, and insolvency interactions - Overarching objectives: - Private law must define how ownership and other rights transfer to enable circulation and protect good faith receivers. - “Finality” must be determined at three levels: when a transfer is effected (asset-dependent), impact of insolvency (“zero-hour” rules), and impact of the Nemo Dat rule. - Perfection of transfers (by private law classification): - Hybrid asset: - Transfers effected when control shifts from transferor to transferee (e.g., token moved between wallets), even if ledger not yet updated; complications arise with same-intermediary wallets. - Novel sui generis asset: - Transfers effected per mechanisms in legislation or governing contracts; legislation can choose absolute reliance on ledger addresses or give legal meaning to wallet transfers. - Pure intangible: - Transfers need a legal mechanism to avoid relying on general assignment rules; legislative choice between “absolute registry” and “softer” quasi-registration (wallet booking) models. - Insolvency protection and settlement finality: - Settlement Finality laws (e.g., EU Settlement Finality Directive) protect systemic interbank systems and are driven by system type and participant categories rather than settlement asset. - Such settlement finality protection is likely less relevant for retail token-based CBDC; interbank/wholesale contexts may warrant inclusion. - Nemo Dat rule: - There is an argument to exempt token-based CBDC from Nemo Dat to protect good faith acquirors and enable circulation, particularly if a hybrid (partly tangible) classification applies. - If CBDC is a pure intangible akin to bank account balances, exemptions are less likely; securities regimes typically apply Nemo Dat with limited carve-outs. ### Offline transactions — legal challenges and design responses - Offline aims and technical challenge: - Offline CBDC transactions aim to increase resilience and inclusion but create gaps between ledger records and token ownership transfers. - Legal feasibility depends on ledger/wallet role: - If ledger is constitutive, offline transfers are logically difficult. - If ledger is indicative, offline transfers can be accommodated with wallets evidencing transfers outside the ledger. - Custodial wallets operated in a distributed manner can reflect ownership and evidentiary rights for offline transfers. - Recommended legal posture for offline flows: - Avoid frameworks that create “partial or conditional” transfers of ownership; better to treat offline transfers as contractual obligations to transfer upon reconnection or use mechanisms like “digital checks” exchanged upon reconnection (noting complexity concerns). - Risks and public-law options: - Offline use amplifies double-spend and counterfeit risks; central banks must consider compensation rules and supervisory powers over custody chains. ### Common banking operations: safekeeping/custody, deposits, lending, pledging, and insolvency consequences - Safekeeping and custody: - Holders must be protected in wallet-provider insolvency by rights in rem or equivalent protections; public-law supervisory rules can require segregation and robust records and provide restitution mechanisms. - Common Law remedies (bailment/trust) and Civil Law depositor protections can support holder rights; legal reforms may be necessary to ensure practical effectiveness, especially with omnibus accounts. - Bank deposit and lending: - Deposit of token-based CBDC with a commercial bank would transfer tokens to the bank, converting the depositor’s claim on the central bank into a claim on the commercial bank; such transactions are likely possible with appropriate contractual/legislative frameworks. - Loans can be disbursed and repaid in token-based CBDC subject to contractual stipulations and fungibility clarifications. - Pledging token-based CBDC: - Traditional pledge regimes based on possession of tangibles may not fit intangibles; legal reform options include: - Recognizing control (private-key transfer, multi-signature, smart-contract control) as perfection (as in Wyoming and recent UCC amendments). - Creating sui generis rules defining creation, perfection (control), and priority of security interests in CBDC. - Priority rules should protect pledgees with effective control against competing creditors. - Rights in counterparty insolvency: - Holders should retain property-like protections (rei vindicatio or equivalent) where legal regimes permit; outcomes depend on property classification, commingling, and omnibus account practices. - If CBDC is converted into a bank deposit, holder becomes a creditor of the bank; insolvency protections then follow existing deposit/insurance and insolvency rules. ### Private international law and cross-border treatment - Proposed regime: - Monetary legal relationship and currency status governed by lex monetae (law of issuing jurisdiction). - Proprietary issues for hybrid CBDC held indirectly through wallets governed by lex rei sitae of the wallet (place of wallet-provider establishment), subject to qualifying-office rules, regulatory constraints, and contractual choice of law. - Contractual relationship between holder and foreign wallet provider governed by lex contractus. - Implications: - Issuing-country law centralizes key legal determinations; foreign jurisdictions can recognize foreign token-based CBDC as currency under their lex monetae. - Cross-border complexity arises where wallet providers operate across jurisdictions; choice-of-law clauses and regulatory constraints will matter. - International coordination and, where appropriate, legislative private international law rules are advisable to reduce frictions. ### Is law reform needed? Conclusions and policy priorities - Core conclusions: - Token-based CBDC is a new legal form of money that raises significant private law challenges; it incorporates an unprecedented monetary claim in a digital token. - Property law classification (hybrid, sui generis, or pure intangible) is the foundational decision shaping transferability, custody, depositability, pledgeability, insolvency rights, and private international law. - To circulate widely and safely, CBDC requires clear private law status and possibly emulation of some “currency privileges.” - Law reform and regulatory strategy: - Use contractual frameworks where feasible but acknowledge limits (insolvency law, public-law supervisory constraints, litigation risk). - Where existing private law is insufficient or uncertain, comprehensive legislative intervention is often necessary to provide robust, predictable legal foundations. - Ensure internal coherence of classification and uniform treatment across related legal rules; avoid “cherry picking.” - Consider anchoring CBDC reforms in broader frameworks for digital money/financial assets or pursue targeted CBDC legislation. - Strong argument for international coordination to reduce cross-border legal frictions. - Key recommended approaches (summary bullets): - Support contractual regimes with public-law regulatory powers and supervisory requirements for wallet providers. - Clarify legal roles of registries/ledgers and wallets (constitutive versus indicative). - Decide whether to grant CBDC tangible attributes (hybrid) or create a sui generis category, or legislate bespoke rules for pure intangibles. - Define rules on transfer finality, applicability of Nemo Dat, and interaction with settlement finality regimes. - Establish protections for holders against intermediary insolvency (segregation, restitution, rights in rem). - Clarify private international law rules governing proprietary issues and contractual relations. ### Key statistics and contextual points from the note - As of late 2023, 94 percent of 86 surveyed central banks were exploring CBDCs. - Three central banks (The Bahamas, Nigeria, and Jamaica) have issued CBDCs. *International Monetary Fund. Fintech Notes — Private Law Aspects of Token-Based Central Bank Digital Currencies (IMF Fintech Note 2025/003).* ### references. ### References ### Identifiers, Subjects, and Classification - ISBN: 9798229004282 (paper) - ISBN: 9798229003896 (ePub) - ISBN: 9798229003940 (WebPDF) - Subjects: LCSH: Digital currencies—Law and legislation. | Finance—Technological innovation. - Classification: LCC HG1710.3.B4 2025 ### Disclaimer and Purpose - DISCLAIMER: Fintech Notes offer practical advice from IMF staff members to policymakers on important issues. The views expressed in Fintech Notes are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. - Purpose: This Fintech Note examines the private law aspects of token-based CBDC primarily intended for retail use and provides a practical legal-analytical framework for designing a private law framework for token-based CBDC. ### Recommended Citation - Bechara, Marianne, Wouter Bossu, Amira Rasekh, Chia Yi Tan, and Akihiro Yoshinaga. 2025. “Private Law Aspects of Token-Based Central Bank Digital Currencies.” IMF Fintech Note 2025/003, International Monetary Fund, Washington, DC. ### Publication Orders and Contact Information - Publication orders may be placed online or through the mail: - International Monetary Fund, Publication Services - P.O. Box 92780, Washington, DC 20090, U.S.A. - T. +(1) 202.623.7430 - publications@IMF.org - IMFbookstore.org - elibrary.IMF.org ### Acknowledgements and Authorship Note - *This note was written while Akihiro Yoshinaga and Chia Yi Tan were on secondment with the IMF.* - The note has benefitted from comments from IMF staff and E. Addo Awadzi and colleagues of Bank of Ghana, R. Alassaf, A. Beaves, A. Borestam, J. Cheng, K. Chin Quee Akin, C. Cozer, R. Deleveaux, H. De Vauplane, G. Dziguashvili, E. Frieberg, G. Goh Escolar, L. Gullifer, M. Haentjens, M. Itatani, M. Johansson, H. Kanda, C. Keller, M. Kimber, N. McBride, O. Partsch, A. Rossi, K. Salam-Alada, G. Stuer, T. Kawakami, E. Themner, S. Thomas, L. Urrutia, K. Van Nuffel, H. Wang, N. Youssef, P. Yuen, and C. Zellweger-Gutknecht. - Legal Department reviewers include Mmes. Liu and Chen, and Messrs. Gullo, Garrido and Emre. - Final responsibility: “Of course, any mistakes, errors or omissions are the authors’ alone.” ### Table of Contents Highlights (Selected Headings and Structure) - I. Introduction - II. The Novelty of Token-Based CBDC under Private Law - III. The Legal Nature of Token-Based CBDC under Property Law - Token-Based CBDC as a Hybrid Asset - CBDC as a Novel Sui Generis Category - CBDC as Pure Yet Novel Intangible - IV. How are Ownership Rights in Token-Based CBDC Held and Evidenced? - Registries/Ledgers - Wallets - V. Transfer of Token-Based CBDC - A. Perfection of transfers of token-based CBDC - B. Insolvency Protection, Payment System Settlement Finality, and Transfers of Token-Based CBDC - C. Nemo Dat Rule and Transfers of Token-Based CBDC - VI. Token-Based CBDC and the Common Banking Operations - A. Safekeeping and Custody - Common Law - Civil Law - All Jurisdictions - B. Bank Deposit and Lending - Bank Deposit - Lending - C. Pledging - D. Insolvency of Counterparty - VII. Private International Law and Token-Based CBDC - VIII. Is Law Reform Needed? - IX. Conclusions - Boxes (selected): - Box 1: Private Law Aspects of Account-Based CBDC - Box 2: Legal Classification of Digital Assets - Box 4: The Legal Challenges of Offline Transactions - Box 7: A Proposed Private International Law Regime for Token-Based CBDC - Box 8: Key Questions for Developing a Private Law Framework for Token-Based CBDC - Figures and Tables noted (placeholders retained in source) ### Key Introductory Findings and Contextual Statistics - As of late 2023, 94 percent of 86 surveyed central banks were exploring CBDCs. - Three central banks (The Bahamas, Nigeria, and Jamaica) have issued CBDCs. - Definition used for “token-based” CBDC in this note: - (a) a form of money; - (b) issued by a central bank and thus expressed in the official monetary unit; - (c) where the monetary claim on the central bank is incorporated in a digital token (in its various possible technological forms); and - (d) the transfer of the token equates to the transfer of the claim, - (e) without a current-account relationship between the central bank and the holder. ### Scope, Caveats, and Relationship to Other Work - The note focuses on proprietary aspects of private law and is legal rather than technological in approach. - It follows a previous IMF working paper on public law aspects of CBDC (Legal Aspects of Central Bank Digital Currency: Central Bank and Monetary Law Considerations, IMF, WP/20/254, November 2020). - Caveats emphasized in the note include: - Jurisdictional variability across Common Law, Civil Law, and mixed systems. - No “one size fits all” solution; outcomes depend on specific design features. - The account-based versus token-based distinction used is legal, not technological. - The note is based on common designs being investigated by central banks at the time of writing and may not cover future design innovations. - The note references ongoing work by the International Institute for the Unification of Private Law (UNIDROIT) Digital Assets Working Group. _International Monetary Fund. Fintech Notes — Private Law Aspects of Token-Based Central Bank Digital Currencies (IMF Fintech Note 2025/003)._ ### Section IV inquires how ownership rights in token-based CBDC can be held and evidenced. Section V ### Private Law Aspects of Token-Based Central Bank Digital Currencies — II. The Novelty of Token-Based CBDC under Private Law ### Key legal features of token-based CBDC - Token-based CBDC incorporates a monetary claim on the central bank in a digital token: - CBDC will represent a direct legal relationship (claim) of the holder of the token with the issuing central bank. - Issuing central banks book issued banknotes as a liability on their balance sheet. - Under accounting law and standards, a reporting entity can only book a liability if it meets the applicable “recognition criterion.” A typical such criterion will state that “a liability is a present obligation of the entity arising from past events, which is expected to result in an outflow from the entity of resources resulting in an economic benefit” (IASB). - This means that CBDC, as with banknotes, incorporates an obligation of the issuing central bank and thus a claim of the holder on that central bank. - The concept of “incorporation” and the legal autonomy to use its own concepts: - The law has historically used the concept of token as an object that can operate as a “sign of proof” or “carrier,” including of value or a claim on a good or service. - Many monetary laws use the concept of “token” in material form (paper, plastic or metallic objects) that could incorporate monetary claims. - The incorporation of monetary (and other) claims in an immaterial, digital token is unprecedented. - The legal concept of token must be distinguished from the technological concept. - It is possible to countenance that a certain design gives rise to the occurrence of a legally accepted token, even if that is technologically not necessarily the case. - Designers of token-based CBDC must ensure that their technological and financial solutions reflect the inherent legal characteristics of “digital tokenization.” - Transfer of the token equals transfer of the claim: - Control of the token will essentially amount to control over the CBDC—i.e., the transfer of the token can legally be accomplished without instruction to, and action by, the issuing central bank. - This legal characteristic is an absolute precondition for wide circulation in the economy. - Technologically, there may be instructions to, and actions by, the issuing central bank (or even an intermediary), for instance in the context of a permissioned ledger; legally, the token-based CBDC would be transferred between holders without legal intervention (for example, in the form of a debit instruction) of the central bank. - The same legal principle applies if technologically tokens are not so much “transferred,” but the original token is destroyed with the payor and the payee acquiring a new token; legally, this would still amount to a transfer. The same principle applies already to transfers of book money. - No current-account legal relationship between central bank and holder: - Token-based CBDC entails no current-account legal relationship between the central bank and the holder. - This distinguishes token-based CBDC from account-based CBDC, which is founded on the current account legal framework and poses no new private law issues. ### Legal and doctrinal observations - Historical and doctrinal context: - Following the abolition of convertibility in specie, the object of the monetary claim has become very “sui generis” (mainly including a right to exchange banknotes) but it remains a claim nonetheless. - The booking of banknotes as liabilities on central bank balance sheets has been certified by external auditors of those central banks. - The law’s pre-digital use of “token” as a carrier or sign of proof supports legal accommodation of digital tokens, but the immaterial nature of digital tokens raises novel questions. - Precedents and analogies: - The incorporation of an electronic money claim in a card and electronic check written payable to cash may be considered precedents. - The electronification of trade finance documents (e.g., bills of lading) exists, but that process does not really have recourse to a digital token. - For technological perspectives and debates about token- versus account-based design, reference is made to fora such as Liberty Street Economics. ### Implications for CBDC design and law - Designers must align technological and financial designs with legal characteristics of digital tokenization to ensure legal efficacy and predictability. - Legal systems may accept that a specific technological design gives rise to a legally recognized token even if technology does not inherently create legal effects. - Maintaining transferability without central bank intervention is legally necessary for currency-like circulation, though technological implementations may involve central bank or intermediary actions. *Source: FINTECH NOTES — Private Law Aspects of Token-Based Central Bank Digital Currencies (Section II: The Novelty of Token-Based CBDC under Private Law).* ### Box 1: Private Law Aspects of Account-Based CBDC ### Box 1: Private Law Aspects of Account-Based CBDC ### Definition and operational mechanics - Account-based CBDC is a form of money whose value is recorded as digital representations of credit balances on current accounts held in a central bank’s books. (1) - Those credit balances can be constituted in three ways: - (i) “deposits” of banknotes and coins; - (ii) transfers from other current accounts; - (iii) crediting by the central bank. - Transfers between current accounts are effected through debits and credits of these accounts, i.e., account-based CBDC would deploy conventional banking techniques. - There is an argument that wholesale account-based CBDC has been already in existence for many years. (2) - Current accounts represent a contractual legal relationship between the central bank and the account holder; rights and obligations are mainly provided by contractual terms and conditions (for example, rules on debit instructions and the right to make corrective bookings in case of errors). - Legal parameters of current accounts are well developed and include: - rules that protect good faith acquirers typically will not apply to this form of intangible money; - in many jurisdictions, netting of debit and credit operations will be allowed after insolvency, even if general insolvency rules prohibit netting post opening of insolvency proceedings. ### Private law challenges of digital (intangible) currency - The special private law status and privileges enjoyed by physical currency (banknotes and coins) are founded on its tangible form; the main challenge is to provide similar currency-like legal privileges to an intangible digital asset to support wide circulation. - Example legal needs: protection of the good faith receiver (see section V); clarity that token-based CBDC can be deposited with, or loaned to, financial institutions (see section VI). - Token-based CBDC can be held through various arrangements involving multiple parties; combining technological, financial and legal tools, three conceptually distinct holding patterns emerge that central banks could adopt. ### Three holding structures for token-based CBDC - First: direct-holder-controlled (most analogous to digital cash). (13) - CBDC is controlled directly by its holders. - Service providers would likely play a role in acquiring CBDC by providing technical services and potentially protecting holders from loss of their tokens. (14) - Second: central bank–based holding structure. - Users hold tokens through a direct technical and legal relationship with the central bank; the central bank may hold the CBDC while the holder accesses it via an interface (e.g., a wallet). - Third: indirect holding structure (intermediated custodial model). (15)(16) - Holders hold tokens through an intermediary, but this does not transform the monetary claim on the central bank into a claim on the intermediary. - Holders transfer CBDC through financial intermediaries without direct legal interaction with the central bank. - This model shares characteristics with intermediated securities holdings and is contemplated by many central banks. - From a legal perspective, the role of financial intermediaries in indirect holding structures is critical: - Retail holders will use “custodial” wallets offered by financial intermediaries to hold and transact CBDC. - Wallets are technological and legal tools to access token-based CBDC and make instructions to transfer it. - Distinction: CBDC custodial wallets must preserve that holders have only a “custodial” relationship and not a monetary claim on wallet providers/financial intermediaries to ensure CBDC remains a direct claim on the central bank. - Technical notes: - Technological custodianship can take various forms, such as omnibus accounts, segregated accounts, or storage in secure elements. - Direct-control designs are considered for offline CBDCs (tokens in secure element of owner’s device), tokens signed by blind signature, or DLT-based CBDC with users controlling private keys. (13)(14) ### Legal equivalence to banknotes and legislative options - It is not necessary to classify token-based CBDC as a “banknote”; jurisdictions can legislatively establish a legal “functional equivalence” between token-based CBDC and traditional banknotes. (17) - If chosen, equivalence must play out across all relevant aspects of private law (property law classification, private international law). - Simple declaratory equivalence may not suffice because difficult legal questions arise (for example, how is the owner dispossessed of digital tokens? What is the situs of a digital token?). - The note’s position: a sound private law framework for token-based CBDC can be established without requiring functional equivalence with banknotes; what matters is clear and solid private law rules—often via legislative intervention—that enable token-based CBDC to properly play its role in the monetary system. ### Property law classification and practical implications - Determining the legal nature (classification) of token-based CBDC under property law is critical because it shapes: - whether and how ownership rights can be held and evidenced (Section IV); - how token-based CBDC can be transferred between agents (Section V); - how CBDC can be held in custody, “deposited” with financial intermediaries, and pledged with creditors (Section VI); - rights of holders in counterparty insolvency (Box 6); - application of private international law rules (Section VII). - Legal systems’ traditional classification frameworks and hybrid responses: - Common law: two types of property—real property and personal property; within personal property, choses in possession (tangible goods) and choses in action (intangible goods). (18) - Civil law: rights in rem (property/ownership right over an object) vs rights in personam (rights against a person); movables vs immovables; fungible vs non-fungible movables. (19) - Hybrid categories exist to address novel developments (e.g., documentary intangibles where an intangible is represented by a tangible document). (20) - Some jurisdictions have legislatively modernized to provide property rights over intangible goods. (23) - Recent legal developments: - Several jurisdictions enacted laws governing digital assets in token form; courts and administrative practice have started classifying such assets. - Common thread: property/ownership rights over digital assets, or subcategories such as securities, are increasingly being recognized, albeit with challenges. *International Monetary Fund — FINTECH NOTES: Private Law Aspects of Token-Based Central Bank Digital Currencies (Box 1: Private Law Aspects of Account-Based CBDC)* ### Box 2: Legal Classification of Digital Assets ### Box 2: Legal Classification of Digital Assets ### Common Law Jurisdictions - The main legal characterization of digital assets established so far in Common Law jurisdictions has been centered on property. - United States: - Recent 2022 amendments to the US’s Uniform Commercial Code (UCC) introduced Article 12 to govern the transfer of property rights in digital assets, called “controllable electronic records” (CERs), whereby control of an electronic record is analogous to possession of tangible personal property—the person with control has the power to “spend” the intangible asset by transferring it to another person in exchange for goods or services. - Wyoming law classifies digital assets as intangible personal property subject to the version of the UCC adopted by the state in which a security interest can be perfected. The Wyoming Digital Asset Statute (W.S 34-29-101 et seq.) divides those assets into 3 categories and classifies them within the state’s version of the UCC as: - (i) Digital Consumer Assets (digital asset that is used or bought primarily for consumptive, personal or household purposes and includes an open blockchain token constituting intangible personal property): Treated as general intangibles (personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money and oil, gas or other minerals before extraction, but includes payment intangibles and software) under UCC Article 9 of W.S. 34. - (ii) Digital Securities (digital asset which constitutes a security but excludes digital consumer assets and virtual currency): Treated as securities and investment property under UCC Articles 8 and 9 of W.S. 34. - (iii) Virtual Currencies (digital asset that is used as a medium of exchange, unit of account or store of value, and not recognized as legal tender by the US government): Treated as money under UCC Article 9 of W.S. 34. whereby the security interest can be perfected only by the secured party’s taking possession (WY Stat 34.1-9-313). (1) - The US Internal Revenue Service (IRS Notice 2014-21) qualifies virtual currencies as property for tax purposes, and general tax principles applicable to property transactions apply to transactions using virtual currencies. This is applicable to “convertible” virtual currency, i.e. virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, for example, Bitcoin. - United Kingdom: - The Lawtech Delivery Panel’s UK Jurisdiction Task Force (Legal Statement on Cryptoassets and Smart Contracts, November 2019) characterizes crypto assets as property. This opinion was later confirmed by the English High Court in AA v Persons Unknown [2019] EWHC 3556 (Comm), which concluded that crypto assets fulfill the four classic criteria of property set out in National Provincial Bank v Ainsworth [1965] AC 1175 (HL). (2) - The UK Law Commission’s “Digital Assets: Consultation Paper” (Consultation Paper 256, 28 July 2022) proposes a “third” category of personal property distinct from things in possession and things in action, that is “data objects.” The paper concludes that crypto tokens satisfy the proposed criteria of data objects and are appropriate objects of property rights. (3) - Singapore: - The Singapore Court of Appeal in Quoine Pte Ltd v B2C2 Ltd [2020] SGCA(I) 02 noted Commonwealth decisions and the UKJT’s Legal Statement which concluded that cryptoassets could in principle be treated as property. The court agreed that cryptocurrencies could be capable of being assimilated into the general concepts of property but refrained from opining on the legal classification due to difficult questions about the type of property involved. A similar line was taken by the High Court in CLM v CLN and Others [2022] SGHC 46. - New Zealand: - The New Zealand High Court in Ruscoe v Cryptopia Ltd (in liquidation) [2020] NZHC 728 held that cryptocurrencies were property for the purposes of the Companies’ Act (and “probably more generally”), and that they were capable of being held on trust by a company for its accountholders and be out of reach of the company’s creditors. ### Civil Law Jurisdictions - Liechtenstein: - The 2019 Act on Tokens and Trustworthy Technologies Systems Service Providers ("Blockchain Act") covers all sorts of “tokens” and grants the holder of the private key ownership attributes, such as the power to dispose of the token assets and the power to demand performance if the token represents a claim (Articles 5 and 6.1). The Act grants tokens that incorporate claims a private law treatment equivalent to movable tangibles, effectively establishing the token as “hybrids.” - France: - Article L211-4 of the French Monetary and Financial Code uses the term “owner” of DLT-held financial securities when providing that the recording of those securities in the “dispositif d’enregistrement electronique partage” is made “in the name of one or more holders, owner of the recorded financial securities.” (Art. L211-7, second para., uses similar language.) This recognizes that the holder enjoys property rights over the digital financial security. - Switzerland: - The Swiss Distributed Ledger Technology Act of 2021 recognizes tokenized securities (so called registered or «ledger-based securities») as intangible assets by creating a new sub-category of a “ledger-based security” (Art. 973.d Civil Code). Transfer is governed by the principle that it “may be exercised and transferred to others only via this securities ledger” (Art. 973d(1)(2) CO) and is “subject to the terms of the registry agreement” (Art. 973.f.1 Civil Code), permitting derogation from general assignment rules to achieve a smooth transfer. Some principles for tangibles are made applicable mutatis mutandis (for example, pledging Art. 973.g Civil Code). The reforms’ rationale is that ledger-based securities can be subject to ownership rights. - Germany: - In June 2021, Germany enacted a law on the issuance of electronic securities (Gesetz zur Einführung elektronischer Wertpapiere "eWpG"). The eWpG replaces the requirement for a physical certificate by an entry into an electronic securities register (eWpG §2). It provides for two types of electronic securities registers; central register securities and decentralized crypto securities register (eWpG §§ 12 and 16). Under the eWpG, electronic securities are classified as property (Sachen) within the meaning of §90 of the German Civil Code (eWpG § 2). Transfer of electronic securities will generally continue to be governed by German Civil Code provisions regarding property. - Japan: - In the Mt. Gox bankruptcy litigation, the district court ruled against users’ claim that bitcoin is subject to ownership, reasoning it did not meet the civil law interpretation requiring the object of ownership to be “tangible” and “exclusively controlled.” In reaction, the Payment Services Act was amended in 2016 to introduce a registration system for Crypto Asset Exchange Service Providers and in 2019 to strengthen consumer protection by recognizing a statutory lien combined with a segregation requirement on the digital assets in the hands of service providers. The Act (Art. 2 (5)) defined for its purpose “crypto-assets” as: - (i) property value which is recorded on an electronic device, and excluding the Japanese currency, foreign currencies, and currency-denominated assets, - (ii-a) which can be used in relation to unspecified persons for the purpose of paying for goods and services and (ii-b) can also be purchased from and sold to unspecified persons, and - (iii) which can be transferred by means of an electronic data processing system. ### Implications for Token-Based CBDC - Analytical approach: - In the absence of specific laws or court decisions addressing the legal nature of CBDC under property law, analysis should consider token-based CBDC against the backdrop of existing legal categories. - Key thresholds for classification: - For CBDC to be classified as “property” under Common Law or Civil Law, it will need to fulfil the classic criteria of “property” in the relevant jurisdiction (for example, the four classic criteria set in National Provincial Bank v Ainsworth for English courts). - There is little doubt that token-based CBDC has features of the movable intangible category—the CBDC incorporates a sui generis monetary claim on the issuing central bank and this claim is intangible. The law will also likely allow economic agents to consider CBDC as fungible (even though intangible).25 - Main questions to address: - (a) whether the token-based CBDC displays features of hybrid assets due to additional tangible characteristics, - (b) whether this form of CBDC can be a novel sui generis category, including one of those established by the novel “DLT-laws,” and - (c) when the CBDC is neither, how the CBDC thus qualifies as a pure yet novel intangible. ### Token-Based CBDC as a Hybrid Asset - For token-based CBDC to qualify as a hybrid, legislation or case law would need to determine that there is a sufficient degree of “materiality” in the token to conclude that it can legally be equated to a tangible object. - This would have as a consequence that such CBDC can be “possessed” (or at least be subject to a functional equivalent, such as “control”). - Historical analogy: - Similar reasoning was developed for paper instruments (negotiable instruments and banknotes) and dematerialized securities represented by a credit booking in a securities account. - Likely outcome: - Box 3 (referenced) investigates whether CBDC could be qualified as one of the main categories of existing hybrid assets—the answer is likely negative. It is the authors’ opinion that in many jurisdictions nothing prevents legislation or courts from assigning tangible attributes to token-based CBDC, thus making them new hybrids under property law. *Source: ftnea2025003 - Box 2: Legal Classification of Digital Assets — https://www.imf.org/-/media/files/publications/ftn063/2025/english/ftnea2025003.pdf* ### Box 3: Token-based CBDC and Existing Hybrid Assets ### Box 3: Token-based CBDC and Existing Hybrid Assets ### Negotiable instruments - Most countries have legislation governing negotiable instruments; these laws typically require the instrument to be incorporated in paper (absent electronic document legislation). - Laws prescribe what the instrument should legally achieve in writing; example: under English law, a promissory note is “an unconditional promise in writing made by one person to another signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money, to, or to the order of, a specified person or to bearer” (Section 83 (1) of the 1882 Bills of Exchange Act). - Most jurisdictions recognize a limited, well-established list of instrument types that qualify as negotiable instruments. - Implication: It would be very hard, if not impossible, to qualify token-based CBDC as a negotiable instrument in most jurisdictions. ### Banknotes - Legal status of banknotes is generally unspecified in legislation in most jurisdictions (except a few, for example, England, where they qualify as bearer on demand promissory notes). - Some academics argue public law does not prevent banknotes from being issued in electronic or digital form. - Key differences between token-based CBDC and banknotes: - Digital tokens are not yet widely considered as tangible. - Token-based CBDC requires a technological platform to serve as a medium on which tokens are registered; this could affect legal nature. - Several banknotes-related legislative provisions explicitly refer to a physical and printed carrier. - Absent legislated “functional equivalence” (see para. 14), assimilating token-based CBDC to banknotes under private law is very difficult—even if public law issuance authorization were interpreted to include digital banknotes. - From a public law perspective, this argues for considering token-based CBDC as separate from banknotes in the issuance authorization enshrined in central bank laws. (2) ### Intermediated/dematerialized securities - In most countries, intermediated/dematerialized securities are governed by specific legislation (for example, Royal Decree Nr. 62 in Belgium, and the Luxembourg Law of 6 April 2013). - Those laws typically include a definition of “security” (see, for example, Art. 1.11 of the Luxembourg law). - In almost all those laws, money and currency do not fall under the definition of “security.” - Art. 1 (a) of the UNIDROIT Geneva Securities Convention and Article 1 (a) of the HCCH Securities Convention explicitly carve out “cash” from the definition of “securities” and thus the scope of the Convention. - Implication: It is unlikely that token-based CBDC can be classified as an intermediated/dematerialized security. ### CBDC as a novel sui generis category - Question: Could token-based CBDC be assigned a novel, sui generis property law category? - Substantive considerations: - Is it imaginable that legislation creates for CBDC specifically, or for an asset class to which CBDC belongs, a new property law category? It would be quite uncommon to construct a new property law category for such a narrow asset class. - Alternative: assign token-based CBDC to a broader category, e.g., “ledger-based intangible and fungible asset” (building upon the Swiss example discussed in Box 2). - Formal considerations: - If deployed on DLT or similar technology, whether CBDC would be covered by new “DLT laws” depends on the concept and structure of those laws: some DLT laws may have a very open material scope (for example, Liechtenstein) whereas other DLT laws may be narrower and limited to securities (for example, Switzerland).27 - Jurisdiction-specific outcomes expected. ### CBDC as pure yet novel intangible - In absence of hybrid or sui generis legal nature, token-based CBDC will likely be considered as a pure intangible asset, but with a need for bespoke rules. - Risks of equating token-based CBDC with contractual claims (the archetype of intangibles): - Would entail transfers per rules of assignment. - Transfer of the token would not result in transfer of the right incorporated in the token, which would contradict the definition of token-based CBDC and impede circulation. - Law would need bespoke rules to support circulation, as was done for book money, registered securities, and intellectual property rights.28 - Similar to those intangibles, law would need to consider whether to grant some legal consequences to the technological registry or ledger on which token-based CBDC is held (see Section 4).29 ### Summary on property law categorization - Conceptually possible to bring token-based CBDC under a property law category and thus subject it to ownership rights. - In terms of property law categories, token-based CBDC can be: - a novel type of tangible-intangible hybrid, - a novel sui generis category, or - a pure, novel intangible. ### How are ownership rights in token-based CBDC held and evidenced? - Determining how ownership rights are held and evidenced builds on property law categorization and links to issues in transfer (Section V) and common banking operations (Section VI). - Factors influencing how ownership rights in token-based CBDC are held: - general legal traditions of a jurisdiction (for example, formalism versus consensualism), - legal categorization of the CBDC, - structural and technological design features, - role played by registries/ledgers and wallets in holding tokens. ### Registries/ledgers: legal roles and options - Technological reality: - Tokens typically held on addresses on a registry/ledger and controlled by private keys. - Two legal issues: 1. Should a legal role be granted to a technological ledger (for evidencing holding and transfer of CBDC)? Granting this would likely necessitate legislative intervention to equate the technological ledger with a legal ledger or refer to the effectiveness of the contractual framework governing the registry/ledger (Swiss example in Box 2). 2. If a legal role is given to the ledger, what role should the registry/ledger play relative to other technological instruments with potential legal roles (private keys, access codes)?30 - Two extreme options for the legal significance of the registry/ledger: - Constitutive role: - The registry/ledger is constitutive of ownership rights: ownership rights can only arise through holding on the registry/ledger and no ownership rights in tokens exist unless reflected in (addresses on) the ledger. - This could align with sui generis or pure intangible categorizations if legislation gives “absolute” meaning to ledger registrations. - Indicative role: - The registry/ledger is indicative of ownership rights: registration acts as a presumption of ownership, but ownership can be proven and transferred outside the registry/ledger. - The “registrar” would have a duty to adjust the registry/ledger to outside legal acts (for example, succession between natural persons or merger between legal persons).31 - This approach could work with all three categorizations (hybrid, sui generis, pure intangible) by giving a “non-absolute” meaning to ledger registrations. - Interaction with legal nature: - Constitutive approach may be inconsistent with a hybrid categorization because attributing absolute meaning to the registry/ledger conflicts with the partly tangible nature of the asset—ownership in tangibles can typically be transferred without registration. - Indicative approach is consistent with a hybrid categorization and with legislating non-absolute meaning for ledger registrations for sui generis or pure intangibles. - Dependence on practical and legal design of CBDC holding structures: - Depending on technology, control of private keys or tokens could resemble “possession” (see para. 19); transfer of tokens may amount to transfer of (quasi-) possession and thus ownership rights. - Whether financial intermediaries operate their own registries/ledgers will affect how many tokens are held by holders in each digital wallet. - The contractual framework among the central bank, financial intermediaries, and retail users can establish a legal link between ledger and CBDC, possibly anchored in legislation; such contracts can be designed in many ways. - Conclusion: The legal signification given to the registry/ledger of token-based CBDC will to a large degree depend on the design features of that form of money, making general conclusions difficult. *Source: FINTECH NOTES — Private Law Aspects of Token-Based Central Bank Digital Currencies (Box 3).* ### conclusions in this regard. ### ftnea2025003 - conclusions in this regard. ### Wallets - Key question: whether ownership rights in token-based CBDC can be held and evidenced through balances in custodial wallets. - Two reflections: - If the token-based CBDC can truly be held in custody (to be discussed in detail in Section VI), custodial wallets should reflect the ensuing constellation of ownership rights, including from an evidentiary perspective. This entails that the ownership rights in the token can be held, exercised and evidenced (including in case of insolvency of the wallet provider) through the wallet. - Interaction between custodial wallets and registries/ledgers must be considered: - The registry/ledger would be only indicative of ownership rights and need to be adjusted to CBDC transfers between wallets, particularly for transfers between holders of wallets of different intermediaries and even for transfers between wallet holders with the same intermediary. - Intermediaries would likely be holding amalgamated client holdings of tokens in “omnibus” positions on (addresses on) the registry/ledger (see Section VI). - To maintain the quality of CBDC as central bank money—a direct monetary claim on the central bank—it will be imperative that the holders maintain ownership rights in the tokens. - Legal frameworks governing those “omnibus positions” should recognize ownership of holders on wallet balances; a rule whereby ownership rights are only recognized on the registry/ledger would be difficult to reconcile with ownership rights of holders on balances in wallets. ### V. Transfer of Token-Based CBDC — overarching objectives - Private law rules should describe how ownership and other rights in token-based CBDC can be transferred between economic agents to enable circulation of money. - Legal certainty for good faith receivers is critical: the good faith receiver of money should acquire ownership without investigating the transaction chain. - Determining when transfers of token-based CBDC are definitive, or “final,” is of critical importance for extinguishing monetary obligations. - “Finality” operates at the following 3 levels: - When is a transfer effected? Conditions depend on the legal nature of the asset: - Tangible/hybrid assets: transfer completed when made hand-to-hand (traditio related to physical possession). - Account-to-account transfers of book money: credit to the receiver’s bank account provides finality (cancellations of previous claims and creation of new claims on the bank). - Registered securities: transfer is effected when reflected in the registry. - Parties can amend conditions for finality under contractual freedom, but within the boundary of the legal nature of the asset. - Impact of insolvency rules on definitive character of transfer: - Many countries have a “zero-hour rule” in insolvency law: transfers effected by an insolvent person after midnight on the date declared insolvent are automatically ineffective and need to be unwound, creating contagion risk. - Impact of the “Nemo Dat” rule: - Nemo Dat: nobody can transfer more rights than he/she has; receiver cannot receive ownership if transferor did not have such rights. - Payments in physical currency are typically exempted from Nemo Dat to protect good faith receivers because receivers are not expected to investigate ownership and it is practically impossible to track origin of currency. - Box 4 will focus on legal challenges to “offline” transactions (to appear at end of section). ### A. Perfection of transfers of token-based CBDC - Legal framework must be clear when a payment (transfer of token-based CBDC) is “effected,” aligned with private law classification and how ownership rights are held and evidenced. - Outcomes by private law classification: - Hybrid Asset: - Transfers effected as per rules for “modernized tangibles,” generally when control over the tokens shifts from transferor to transferee. - Depending on CBDC design (notably indirect holding structures), this transfer of control could occur when tokens are transferred from transferor’s wallet to transferee’s wallet (irrespective of who controls the private keys), even if new positions are not yet reflected on a ledger or registry. - Under an indirect holding structure, there would be no transfer on the registry/ledger if transferor and transferee hold wallets with the same intermediary. - This can cause complexities. - Novel Sui Generis Asset: - Transfers effected either per mechanism established by law granting the CBDC its sui generis private law status or per contractual mechanisms governing the token-based CBDC (Swiss approach mentioned in Box 2). - Legislation can choose between relying absolutely on transfers between addresses in the registry/ledger or granting “legal meaning” to transfers between wallets; choice conditional on CBDC holding structure. - Intangible Asset: - Transfers effected as per mechanism established by law; absent such mechanism, question arises whether general rules on assignment apply. - From imperative of broad circulation, relying on general assignment may not be optimal. - Legislation faces similar choice as for sui generis assets: “absolute registry” versus alternative, “softer” quasi-registration mechanisms (such as on a wallet). - A “booking” on a wallet would be very similar to a credit booking in current account for book money. ### B. Insolvency Protection, Payment System Settlement Finality, and Transfers of Token-Based CBDC - Settlement finality is important for systemically relevant interbank payment systems; many jurisdictions have Settlement Finality legislation to neutralize “zero-hour” rules. - Example: the EU Settlement Finality Directive regulates designated systems and guarantees final settlement under certain conditions irrespective of insolvency of sending participant. - Scope of settlement finality protection is determined by: - Type of systems (systemic interbank systems). - Categories of participants (financial institutions and banks in particular). - Form of settlement asset is not determinative; settlement finality can apply even when not settling in central bank money. - Consequences for token-based CBDC: - Settlement Finality legislation will likely have little impact on “retail” token-based CBDC: - Token-based CBDC use by natural persons and commercial and industrial firms can be subject to general insolvency rules (bankruptcy law). - Unwinding of payments by an insolvent person using token-based CBDC is unlikely to cause systemic frictions given relatively small amounts and number of payments involved. - Different outcome for “wholesale” account-based CBDC used in interbank payment systems: protection derives from the type of system and categories of participants, irrespective of settlement asset. - There may be cases where settlement mechanisms for token-based CBDC can usefully be brought under settlement finality protection rules, especially in inter-bank settlement contexts. ### C. Nemo Dat Rule and Transfers of Token-Based CBDC - Argument exists for disapplying the Nemo Dat rule for token-based CBDC to protect good faith acquirors: - Token-based CBDC could be traceable depending on design; traceability should not necessarily argue against protection of good faith receivers to facilitate circulation. - CBDC might be traceable by the central bank, but not by users. - Token-based CBDC can conceptually be considered as property and be subject to ownership rights; it can be “possessed” by, or at least be under the control of, the holder. - Transferee can reasonably assume transferor’s control signifies title; thus exemption from Nemo Dat is conceptually possible. - Especially for token-based CBDC qualified as a hybrid asset, exemption would be consistent with partly tangible nature. - Different conclusion possible if token-based CBDC were considered a pure intangible: - Bank account balances (contractual, intangible rights) do not qualify for Nemo Dat exemption in many jurisdictions. - Securities transfers in registries are typically covered by Nemo Dat, sometimes with carve-out for trades on regulated/organized markets. *FINTECH NOTES Private Law Aspects of Token-Based Central Bank Digital Currencies — INTERNATIONAL MONETARY FUND* ### Box 4: The Legal Challenges of Offline Transactions ### Box 4: The Legal Challenges of Offline Transactions ### Overview - Central Banks are exploring the introduction of offline transactions of CBDC to enable payments when not connected to telecommunication systems (such as the internet), with objectives including increasing resilience in crisis and financial inclusion in areas where telecommunication is limited. (1) - Technical challenges exist to establish sufficiently safe and efficient offline payment systems. - Offline peer-to-peer transfers of tokens via wallets without (immediately) being recorded in the ledger/registry kept at the central bank (and at financial intermediaries, depending on the design) create a gap between ledger/registry records and transfers of ownership rights in tokens. ### Legal feasibility and perfection of offline transfers - A sound legal framework is needed to provide “perfection” (including vis-à-vis third parties) of token transfers to support integrity and trust in offline transactions. (2) - Legal feasibility depends on how the roles of ledger/registry and wallets are legally defined: - If token-based CBDC is designed so the holder holds the CBDC without any intervention of anybody, ownership of tokens can be transferred between Apps on users’ devices without legal difficulty. - If the holding structure assumes the existence of a ledger/registry (one-tier or two-tier), the relationship between ledger/registry and token ownership matters: - If the registry/ledger is constitutive of ownership rights (no ownership unless reflected in the ledger), offline transfer of ownership is logically difficult. - If the registry/ledger is indicative of ownership rights (ownership can be proven and transferred outside the ledger), the system can be adaptable to offline transactions. - Custodial wallets managed in a “distributed” manner without full linkage to financial intermediaries’ systems would directly reflect the constellation of ownership rights, including evidentiary perspectives, allowing ownership rights to be held, transferred, and evidenced through the wallets (see para. 28 regarding custodial model). - It is not advisable to create a legal situation that “ownership will be partly or conditionally transferred to a receiver”. Given that settlement finality cannot be provided under offline circumstances, the legal situation can be better depicted as a contractual obligation of the transferor to transfer the token to the transferee, which will be executed upon a reconnection to the network. (2) - One formalization option is to conceive the off-line transaction as transferring a “digital check” instead of a token; upon reconnection the digital check would be exchanged with a token while transferring the token with finality. The note observes that CBDC systems could be too complicated if this approach were to be taken. ### Private law classification implications - The role of private law classification of token-based CBDC is central to how offline transfers are perfected: - If CBDC is considered a hybrid asset, transfers will be perfected by rules for “modernized tangibles” (see para. 31). Depending on design, offline transfer of control of tokens can occur between users’ wallets. - If CBDC is considered a pure intangible, with a view to disapply general rules on assignment, a legal registry will need to be established to govern the transfer of assets (para. 22). Under such a model, it is logically difficult to consider how offline transactions can be perfected. ### Risks amplified by offline transactions and possible legal responses - Offline operations can amplify the risk of double spending and counterfeiting. - Avoiding double-spending and ensuring authenticity of tokens are key technical challenges for central banks. - Problems could occur due to technological glitches, operational mismanagement, or security loopholes. - Receiving a token from an illegitimate holder or a counterfeit token would not be a valid transaction. - Public law options to address losses and systemic confidence: - It may not be desirable for good faith receivers to bear the loss of receiving illegitimate or counterfeit tokens. - Public law could set a rule for compensation of damages and provide powers to the central bank for adequate regulation and supervision of the “custody chain” for CBDC in case of an indirect holding model. ### Key legal focus for jurisdictions - Jurisdictions will need to carefully design rules to determine when exactly transfers of token-based CBDC become definitive. - Given that this form of CBDC is intended and designed to be used in relatively small amounts for retail payments, often made for goods and services, the focus of those rules should be on: - (a) when and how the payee acquires the CBDC; and - (b) his/her/its protection against claims from alleged “true owners.” - The design of those rules will depend significantly on the private law classification of the CBDC. - Settlement finality rules aimed at financial system stability do not seem immediately relevant in this retail offline context. *Box 4: The Legal Challenges of Offline Transactions — FINTECH NOTES Private Law Aspects of Token-Based Central Bank Digital Currencies, INTERNATIONAL MONETARY FUND.* ### Box 5: The Role of Legal Terms and Conditions for Wallets in CBDC Issuing ### Box 5: The Role of Legal Terms and Conditions for Wallets in CBDC Issuing Countries ### Wallet Terms and Legal Frameworks in Issuing Countries - The Bahamas - Central Bank of the Bahamas Act, in 2020, grants the Central Bank the power to issue currency in the form of “e-money”. - E-money is defined as “monetary value represented by a claim on the issuer which (a) is stored electronically, (b) issued on receipt of funds for the purpose of making payment transactions but does not amount to a deposit; and (c) accepted as a means of payment by persons other than the issuer”. - Under the Central Bank’s regulatory framework, payment service providers are generally required to establish publicly available terms and conditions for use of e-money but there are no special terms that apply exclusively to the use of Sand Dollars. - The CBB issued the Bahamian Dollar Digital Currency Regulation, 2021 governing wallet providers. - The 2021 Regulation requires as a registration condition that wallet providers: - (i) take “adequate measures for the purpose of safeguarding the funds of wallet holders” (S. 8(b)); and - (ii) have “effective arrangements in place for the protection of client assets and money arrangements consistent with any prescribed rules or guidelines issued by the Central Bank.” (S. 8(e)). - These prescriptions impose public law requirements on wallet providers to safeguard client CBDC, but the overall legal framework does not establish explicit private law protections. - Example wallet term from a financial intermediary (not generalized): - (a) the provider cannot and will not use the funds to invest or lend to other persons or entities; - (b) e-money will not accrue interest; - (c) e-money is not covered by the deposit insurance; and - (d) the funds corresponding to e-money will be held in a segregated bank account separately from provider’s own funds. - Commentary: This framework and the example terms reflect a logic of traditional e-money that may not fit CBDC, because wallet holders should hold “the total amount of client CBDC qua CBDC with the central bank,” not merely “funds corresponding to the e-money.” - Nigeria - eNaira is the digital form of the national currency: it is a direct liability on the CBN, a legal tender and will be at par with the physical Naira. - The downloading of eNaira application (App) is required to access, use and hold eNaira using the eNaira platform. - The eNaira platform is administrated by the CBN where intermediaries maintain “treasury eNaira wallets” and “eNaira branch wallets” to “warehouse and distribute eNaira received from the CBN”. - Intermediaries facilitate wallet onboarding, request eNaira “on behalf of their customers” and develop innovative products to drive adoption. - The regulatory guidelines set a wallet recovery process for lost access to the eNaira wallet and indemnification for the eNaira lost. - Onboarding requires acceptance of the Terms and Conditions of eNaira App (TC). The TC: - state the App is developed and owned by the CBN and enables “the Bank to provide services to Users” based on the contractual relationship; - provide the App “as is” and the CBN expressly disclaims any warranty or liability and reserves the right to disable or suspend access; - assign responsibility to the user for “safekeeping any “passwords, PINs, private keys [..] any other codes to access” the App” — this appears to relate to authentication codes to access the wallet account on the App rather than private keys of public addresses of the eNaira. - Legal structure created: - (1) a direct contractual relationship between the CBN and App users for provision of “technical services” (use of the App); - (2) a reported safekeeping contractual relationship between the CBN and users for the actual eNaira held in users’ wallets. - Jamaica - BOJ Act amended to include a definition of CBDC and make CBDC legal tender in electronic form, granting the Bank of Jamaica (BOJ) sole authority to issue CBDC. - BOJ may make rules and regulations on the framework under which the CBDC is held or used by the public, cybersecurity standards for financial intermediaries distributing CBDC, and the interaction between these intermediaries and customers. - CBDC is issued by the BOJ to wallet providers consisting of commercial banks, building societies, merchant banks or authorized payment service providers; consumers obtain digital wallets from these wallet providers. - National Commercial Bank Jamaica Ltd. (first intermediary to distribute Jam-Dex) offers a mobile wallet service (“Lynk” application) using either a Lynk e-money wallet or a Jam-Dex wallet. - There are no specific terms on the custody of the Jam-Dex in the wallet. ### Bank Deposit and Lending — Legal Character of Deposits and CBDC Interaction - Bank deposit legal mechanics (general principles) - Bank accounts (deposit, checking, savings) legally amount to current accounts: financial operations between bank and customer are netted to a single credit or debit balance. - When currency passes from the depositor to the bank and the amount is credited to the account: - the bank obtains possession of, and title (ownership) to, the currency; - legal title to the currency is surrendered and it becomes the property of the bank to use as it sees fit within its legal powers; - the banker becomes a debtor to the depositor; the credit balance is a liability (debt) of the bank. - The bank’s main obligation is repayment of the “deposit” (credit balance) as an equivalent amount of currency, repayable on demand or on agreed conditions. - If the holder’s account shows a credit balance, the holder could in principle earn interest on it if contractually stipulated. - Could token-based CBDC be subject to a “bank deposit” legal relationship? - If a CBDC is deposited with a bank: - the tokens would be transferred from the depositor’s wallet to the bank (wallet or directly on registry/ledger); - the private key may also be held by the bank and transfer of ownership will be reflected on the registry/ledger; - the CBDC would cease to belong to the holder and be transferred to the commercial bank; - the depositor’s claim on the central bank would be converted to a claim on the commercial bank. - Consequences for the commercial bank: - the bank can “deposit” (redeem) CBDC with the issuing central bank or use it, as an alternative to cash, to restitute commercial bank book money to clients withdrawing their deposits. - Legal conclusion: - such a transaction will likely be legally possible, especially if documented through appropriate contractual terms and conditions (legislative provisions could also govern the issue). - Table 1 (text description of impact on commercial bank balance sheet post “deposit” of CBDC): - Assets: Deposits with CB: -- ; “Cash” issued by Central Bank (banknotes and token-based CBDC): + xx ; Client Deposit Accounts: + xx ; Equity - Lending (liabilities/uses not explicitly enumerated beyond table entries). - Lending implications - Bank loans are typically disbursed as commercial bank money (credit balances / book money) or certified checks, not physical currency. - Borrower may convert commercial bank money into central bank money per lending bank’s terms and conditions; future contractual stipulation could allow withdrawal in token-based CBDC. - Lender’s terms and conditions will govern loan reimbursement and payment of interest — both could conceptually be effected in token-based CBDC. - Note: legal structure requires establishment of fungibility and appropriate terms for repayment forms (see cross-reference to para. 19 and commentary on fungibility). ### Pledging Token-Based CBDC — Creation, Perfection, Priority and Legal Change Needs - General points on pledging - Pledge: delivery of a movable asset by debtor to creditor as security for debt; possession passes to pledgee while legal ownership remains with pledgor; pledgee generally has right of sale on default. - Key elements: - Creation (attachment) of security interest: security agreement granting security interest and describing collateral. - Perfection: ensures security interest is effective against other creditors and third parties; in pledge, achieved by transfer of possession or control. - Priority: determines ranking among secured creditors; first in priority typically can satisfy debtor obligation before others. - Legal challenges for token-based CBDC pledging - Many jurisdictions require possession of tangible movable assets for pledges; token-based CBDC are incorporeal/intangible and may not fit existing pledge regimes. - Common Law courts may need to expand “possession” to include exclusive factual control over an incorporeal data object to enable pledge-like security. - UK Law Commission (Digital Assets Consultation Paper, July 2022) suggests: - possible development of a new or analogous security interest for data objects founded on transfer of exclusive factual control by way of security; - but provisionally concludes reform should enhance non-possessory security interests (mortgage or charge) rather than attempt to expand possessory securities. - Case law example: Your Response v Datateam held a lien could not exist over intangible property because possession requires “physical control of tangible objects”. - How law should clarify pledging of token-based CBDC - Creation: If token-based CBDC qualifies as a hybrid or sui generis property, parties can contractually grant a security interest in token-based CBDC as collateral. - Perfection: - If perfection requires transfer of possession, parties may not ensure effectiveness against third parties if CBDC is intangible. - Legislation could allocate tangible features to token-based CBDC to enable possession/pledge. - Delivery of private key or tokens by pledgor to pledgee could confer constructive possession; law must clarify whether such transfer equates to transfer of ownership. - Alternatively, establish sui generis property category and explicitly allow pledge, defining how created and perfected (e.g., giving control to pledgee; keeping CBDC on pledgor’s account while giving control to pledgee; or transferring CBDC to pledgee). - Priority: - Law should clarify priorities among competing secured creditors; a pledgee with “control” of CBDC should have priority over other secured creditors. - Examples of legislative approaches: - Wyoming Law 34-29-103: perfection of a security interest in virtual currency may be achieved through possession (including use of a private key, multi-signature exclusive to secured party, or a smart contract). - Recent amendments to UCC Article 9 (UCC Articles 9-105A and 9-312(b)(4)) approved in July 2022 by the Uniform Law Commission create the concept of “electronic money” and provide that a party may perfect a security interest in electronic money by obtaining “control”, which encompasses: - power to avail substantially all benefits from the electronic money; - prevent others from availing themselves of such benefits and transfer the record and associated benefits; - the electronic money, a record attached to it or a system in which it is recorded enables the person readily to identify itself (e.g., by cryptographic key). ### Insolvency of Counterparty — Rights of CBDC Holders - Core insolvency question: whether a holder of token-based CBDC can reclaim (e.g., via rei vindication or similar relief) his/her/its CBDC from an insolvent counterparty. - The note indicates Box 6 will assess this issue in considerable detail (no further detail provided in this box). *International Monetary Fund — FINTECH NOTES: Private Law Aspects of Token-Based Central Bank Digital Currencies* ### Box 6: Rights of CBDC Holders in a Counterparty’s Insolvency ### Box 6: Rights of CBDC Holders in a Counterparty’s Insolvency ### Safekeeping and Custody - It is imperative that the holders of token-based CBDC are protected in case of the insolvency of the wallet provider by granting them rights in rem over the CBDC that are safeguarded notwithstanding the safekeeping or custody arrangement. - Protection could be supported by prudentially enforced (public law) supervisory rules that: - require intermediaries to maintain robust internal records on client positions; - require segregation of own and client CBDC, akin to rules applicable to securities holdings; - support swift restitution in case of insolvency, including by transferring aggregate client positions to another, solvent wallet provider. ### Common Law - Under Common Law, as the bailor remains owner of the bailed assets, her/his rights are protected in case of the bailee’s insolvency. - If bailment were to apply to token-based CBDC, the holder of the CBDC could retain ownership and, in the event of a CBDC wallet provider’s insolvency, the CBDC would then revert to the holder. - If the wallet would qualify as trust, the equitable title of the beneficiary/holder of the CBDC would safeguard her/his token-based CBDC in the event of a wallet provider’s insolvency. - If, however, in a particular jurisdiction, assets of an intermediary held in trust are not excluded or segregated from the estate, then legislation should clearly provide for such exclusion or segregation. ### Civil Law - Under Civil Law, the retention of ownership rights by the depositor (at least under the condition of absence of commingling) provides similar protection in case of insolvency of the depositary, which could protect wallet holders of CBDC. - Legislation could be useful to clarify rights of “depositors.” - Example: Switzerland reformed its Debt Enforcement and Bankruptcy Act (DEBA) in 2021; since then, Art. 242a DEBA allows the depositor to request that crypto assets are to be surrendered under certain conditions. ### Omnibus Accounts and Commingling - In both legal traditions, conclusions could be impacted where the wallet provider uses an omnibus account. - In theory, the holder could still have a proprietary right in the form of beneficial or co-ownership in the pool of CBDC, but this depends on the legal framework in that jurisdiction and the agreement between the parties. - In practice, in many (if not most) jurisdictions, the commingling in the omnibus account is likely to weaken the rights of holders. - This will require enacting new laws for the protection of the CBDC holders or extending existing protective laws to CBDC. ### “Bank Deposit” - By way of the “deposit,” the CBDC-claim on the central bank ceases to be CBDC for the holder and has been converted into a claim on the commercial bank. - In case of insolvency of the commercial bank, the holder will in principle only have a contractual claim in the insolvent estate. - Insolvency laws typically determine the order of loss allocation between the creditors, including the “depositors,” based on attributes of the claims and public policy goals. - Some countries have established “depositor preference”; in others depositors would rank as unsecured creditors. - In jurisdictions with deposit insurance schemes, if the deposit qualifies as a deposit under deposit insurance law, it would be protected up to the limit that is insured. ### Pledge - In the event of insolvency of the pledgee, the pledgor is normally protected against the claims of the pledgee’s creditors on the pledged asset. - After execution of the secured obligation, the pledged asset should revert to the pledgor since ownership remains with the pledgor. - If token-based CBDC could be made subject to pledge, the same rules would apply. - Care must be taken to analyze the impact of commingling the CBDC of the pledgor with the CBDC of the pledgee; if this would weaken the insolvency rights of the former, such commingling should be avoided. ### Overarching Conclusion and Policy Implications - It is possible to design legal rules that allow use of token-based CBDC under common banking operations, albeit not without challenges. - The property law classification will be an important determining factor, as will be the overall design features of the holding structure. - While convertibility in commercial bank book money should be easy, CBDC should remain a claim on the central bank as long as it is held in that quality by holders; this is critical to protect holders’ rights in case of insolvency of wallet providers. *Source: ftnea2025003 - Box 6: Rights of CBDC Holders in a Counterparty’s Insolvency* ### Box 7: A Proposed Private International Law Regime for Token-Based CBDC ### Box 7: A Proposed Private International Law Regime for Token-Based CBDC ### Proposed Private International Law rules - The monetary legal relationship between the holder and the issuing central bank stemming from the CBDC itself would be governed by the lex monetae. - The legal nature of the token-based CBDC as currency, including the possible legal tender status, would also be governed by the lex monetae. It is recognized that the lex monetae of another country than the issuing country can establish the foreign token-based CBDC as currency within its territory, including by granting it legal tender status. - The proprietary issues regarding the token-based CBDC classified as a hybrid under private law and held indirectly through wallets would be governed by the lex rei sitae of the wallet. This would basically be the place of establishment of the wallet provider. Where wallet providers offer CBDC custodial services in more than one jurisdiction, an explicit choice of law in the account agreement between the wallet holder and wallet provider could also play a role, subject to (i) conditions including a qualifying office rule and (ii) regulatory constraints. Other private law classifications and holding structures would presumably point to the application of the law of the jurisdiction of issuance. - The legal relationship between the CBDC holder and a foreign wallet provider would be governed by lex contractus applicable to the wallet relationship. ### Implications for cross-border use - Applying lex monetae to both the monetary claim and the currency status centralizes key legal determinations in the issuing jurisdiction’s law. - Recognition by a foreign lex monetae of foreign token-based CBDC as currency (including legal tender) is explicitly possible. - Where wallets and wallet providers are cross-jurisdictional, lex rei sitae of the wallet (place of wallet-provider establishment) governs proprietary issues unless affected by qualifying office rules, regulatory constraints, or explicit contractual choice of law. ### Interaction with private law classifications - Token-based CBDC classified as a hybrid under private law and held indirectly through wallets points to lex rei sitae of the wallet. - Other private law classifications and holding structures likely point to the law of the jurisdiction of issuance. - Lex contractus governs the contractual relationship between holders and foreign wallet providers. ### Note references within the proposal - The text references contractual and regulatory interactions and notes numbered: 82, 83, 84. --- ### Is Law Reform Needed? - Some private law challenges can probably be addressed through contractual freedom, although subject to significant limitations. - Private law will govern transactional use of CBDC (transfer, deposit, loan, or pledge) among central bank, financial intermediaries, and token holders, allowing aspects of use to be regulated through contractual frameworks. 82 - Central bank terms and conditions, agreed directly by users or indirectly via financial intermediaries, can apply to transactional use; financial intermediaries will need to replicate core contractual stipulations “imposed” by the central bank in their own contractual frameworks with holders. - Two important limitations to contractual solutions: - Contractual provisions cannot always derogate from otherwise applicable private law rules (for example, insolvency law), and will thus be constrained by them. - Contractual arrangements are more likely to be challenged in disputes and may not provide the highest degree of legal certainty to underpin a reliable means of payment. 83 - Central banks may use public law regulatory powers to require compliance with contractual frameworks, providing a public law foundation to private law instruments. - Central banks may also need to issue (public law) regulations governing the activities of wallet providers. 83 - In many jurisdictions, the design of a contractual regime for token-based CBDC will need comprehensive legislative intervention because current private law principles may not provide a sufficiently robust and predictable legal foundation for widespread circulation. - Legislative reform should ensure internal coherence and consistency of legal classification and treatment of token-based CBDC; avoiding “cherry picking” between legal principles is important to prevent inconsistent frameworks. - A degree of international harmonization of substantive rules would reduce cross-border legal frictions, but diversity in private law between jurisdictions might complicate convergence. - Jurisdictions must consider whether to anchor legislative frameworks in a broader framework for digital “money” or financial assets. Token-based CBDC may share features with other digital “money” or financial assets where (a) digital data represents financial value and (b) financial value will be transferred by transferring (control over) digital data. 84 - Countries may opt for targeted legal reform for CBDC or provide a comprehensive legal framework covering both privately issued digital financial assets and CBDC. --- ### Conclusions: Legal foundations and policy priorities - Token-based CBDC is a new form of money from a legal perspective and raises significant private law challenges. - Core premise: token-based CBDC incorporates a monetary claim on the central bank in a digital token—an unprecedented design element. - To circulate widely and safely as money, token-based CBDC (a digital and by definition intangible asset) would need a clear and adequate private law status; this may include emulating “currency privileges.” - Indirect holding through wallets creates a triangular relationship among central bank, wallet provider, and CBDC holder; ensuring the holder retains at all times a direct claim on the central bank is central to legal ramifications and risk assessment. - Determining property law classification of token-based CBDC is the starting point to understand treatment under private law; this classification will shape transferability, custody, deposit, and pledgeability. - Two primary options for property classification: - Assign token-based CBDC as a novel type of hybrid asset (possible to establish as a new hybrid asset under property law and assign tangible attributes). - Create a novel sui generis property law category for token-based CBDC (raises question of applicability of any new “DLT laws” if DLT or similar technology is used). - Countries must consider legal roles of registries/ledgers and wallets and their interaction with holding and evidencing ownership rights. - Legal certainty is required in three respects: - When a transaction (including offline ones) is to be considered effected. - The impact of any existing settlement finality legislation. - The application (or not) of the Nemo Dat rule. - It is crucial to clarify whether CBDC can be subject to banking services: safekeeping/custody, “deposited,” lent, and pledged; virtually all common banking services should be possible for token-based CBDC if supported by enabling legislation and/or corresponding contractual terms. - Establishing token-based CBDC as a fungible asset with some degree of legal characteristics of tangibility by legislation may be most crucial. - Private international law treatment of token-based CBDC needs clarification, particularly regarding proprietary aspects; issuing-country contractual or regulatory frameworks can help shape applicable private international law rules for ownership and holding, whereas jurisdictions hosting financial intermediaries may lack that advantage. - Case law may eventually provide clarity but likely will take time; in some cases enacting private international law rules for token-based CBDC in legislation may be beneficial. - Strong argument for international coordination. ### Key recommended approaches - Use contractual frameworks where feasible, but recognize limits imposed by insolvency and other private law rules. - Support contractual regimes with comprehensive legislative intervention in many jurisdictions to provide robust and predictable legal foundations. - Ensure internal coherence of legal classification and consistency across related legal rules. - Consider anchoring reforms in broader digital money/financial asset frameworks or pursue targeted CBDC legislation. - Pursue international coordination to reduce cross-border legal frictions. --- ### Box 8: Key Questions for Developing a Private Law Framework for Token-Based CBDC - 1. What is the legal nature of token-based CBDC under property law? Does the CBDC fit into any of the existing categories? Is there any guidance to be found in digital assets legislation or case law? - 2. Building upon its property law categorization, how are ownership rights in token-based CBDC held and evidenced? What is the legal role of ledgers, registries and wallets in which the CBDC may be held? - 3. When is a transfer of token-based CBDC “final” between payor and payee? What is the impact of the insolvency of the payor? - 4. Does the payee of token-based CBDC enjoy “good faith” protection? - 5. Can the token-based CBDC be subject to legal arrangements for custody? What is the impact on the rights of holders if financial intermediaries hold in turn such CBDC through omnibus accounts with the central bank? - 6. Are holders of token-based CBDC protected against the insolvency of their intermediary? Are the terms and conditions and operating practices of financial intermediaries adequate in this regard? - 7. Can the token-based CBDC be “deposited” with commercial banks? - 8. Can token-based CBDC be used as “cash collateral”? Would pledge rules apply? - 9. Can the token-based CBDC be held in a cross-border context and, if so, is the private international law “fit for purpose” for governing transactions in such CBDC? - 10. What can the central bank do through its contractual and regulatory frameworks to shape adequate private law rules for token-based CBDC? *Private Law Aspects of Central Bank Digital Currencies NOTE/2025/003* --- _Source: https://www.imf.org/-/media/files/publications/ftn063/2025/english/ftnea2025003.pdf_