Do Central Banks Have What It Takes to Run CBDCs?

The International Monetary Fund (IMF) has issued a paper considering the security of Central Bank Digital Currency (CBDC) ¹. While there are frequent papers covering CBDCs and design features affecting privacy, financial inclusion, and the impact on monetary policy, it is rare for security to be covered. The paper lays out why and how a CBDC is different from existing digital payments and reviews the risks they face.

While design choices are key, the real risk runs in the operation of the system. Central banks are already responsible and run complex financial systems, but a retail CBDC will require different skills, knowledge, and long-term rigour.

Foundations for a CBDC

One could look at introducing a CBDC as an opportunity to rethink existing and legacy payment systems and build new resilient and secure infrastructure using modern technology. In fact, a CBDC represents a fundamental change to the way a central bank operates. A CBDC involves creating a vast and complex eco-system that will be a high value target for criminals and enemies of the state. In addition, should there be a system failure, whether a service outage, data breach or fraud, the failure will degrade trust in money and the central bank. The stakes are high.