Bank of Canada Identifies Five CBDC Design Archetypes for Retail Payments

In a recent analytical note published by the Bank of Canada, five recurring patterns, referred to as “archetypes,” in the design of retail central bank digital currencies (CBDCs) have been identified. This research aims to organize the fundamental characteristics of CBDCs, focusing particularly on how information pertaining to their supply and ownership is maintained and updated.

Understanding the Archetypes

The report, authored by Sriram Darbha, categorizes these archetypes based on distinct governance and operational models. The noted archetypes include:

• Centralized: This model represents a conventional framework where a single authority retains complete control over the CBDC ecosystem.
• Leaderless: A decentralized model that operates without a central governance entity, distributing control among multiple stakeholders.
• Macro-partitioned: This structure involves distinct segments that maintain separate data records and functionalities.
• Micro-partitioned: Similar to macro-partitioned, but involves smaller, more granular divisions within the CBDC infrastructure, with independently updated components.
• Direct: This archetype emphasizes a more transparent and straightforward interaction, where users maintain immediate control and visibility over their transactions and holdings.

Critical Assessments and Implications

The archetypes are ranked by eight criteria, with their capacity to deliver transparency and privacy leading the assessment. The centralized model ranked highest while the direct archetype ranked last in some assessments, particularly regarding user privacy. Darbha remarked that the findings allow central banks to align their regulatory policies with the expectations placed on each of these archetypes.

Future Directions for Research

The analysis serves as a foundation for future discussions regarding the utility, design, and governance of CBDCs. It emphasizes the need to explore how these archetypes can mirror the evolving expectations of users and economic frameworks. The paper hints at practical implications pertaining to the representation of money, highlighting the structural considerations central banks must address.

Collaborative Efforts for Digital Currency Innovation

The Bank of Canada is actively working with the Massachusetts Institute of Technology Media Labs’ Digital Currency Initiative to design a potential Canadian digital dollar. This collaborative research initiative aims to build a robust framework that can guide policymakers in the development and implementation of CBDCs.

As global interest in CBDCs rises among central banks, including the European Central Bank which has published progress reports on its digital euro exploration, understanding these emerging archetypes will be crucial in shaping the future of national currencies in the digital realm.