Central Bank Digital Currency (CBDC): Design Requirements & Challenges

With hindsight, the role of a currency is to facilitate trade. Every sovereign nation manages its currency through a public institution called central bank - solely responsible for supply of currency. Central banks exert their responsibilities as a response to the global and local economic conditions. There is empirical evidence of central banks failing to stop the rout of their respective currencies; thus, losing the trust of their citizens. Central banks act as a custodian of trust. Given the politico-legal framework under which the central banks exist and operate, there exists a room for policy-making that affects financial worth of an individual and in turn of a nation - thus highlighting the role of transparency in the discretionary powers of a central bank. In the recent past, the technological innovations from information technology have helped central banks to introduce digital currency; thus, cutting costs in management of currency and bringing speed in its movement. This technological evolution also brought in privacy concerns while checking the double-spend problem. Blockchain based cryptocurrency has addressed the double-spend problem in digital currency but introduced itself as a global open currency where role of central bank is done by an algorithm.In the long and eventful evolution of currency we have come to a stage where one needs to reconsider the key decisions from the past that influenced the evolution of currency. In this paper, we discuss the key requirements in designing a CBDC and the challenges/limitations it faces.