Central Bank Digital Currency

I am providing a link below to the latest version of my paper. The Reserve Bank of India has declared that it will start a pilot project on the issuance of CBDC. The former Governor Subbarao has strongly cautioned RBI against any interest payment on account-based CBDC. Please see my detailed discussion on various issues related to this subject.

The key takeaways from my paper:

  1. CBDC should not be a mutated version of Bitcoin type digital coin.
  2. CBDC must possess three properies of paper currency fully and comprehesnively: No third party verification is required to transfer digital currency from a holder to a recipent.
  3. No account balance concept is introduced and therefore no double spending is possible.
  4. A holder is a legal owner unless proved otherwise.
  5. All digital currency are of a certain denomination and every transfer is legitimate as long as wallets are genuine. A proper application of public key cryptography and hash function allows a digital currency to mimic it’s paper based counterpart.
  6. The only difference with paper curreency is that transactions based on digital currency are not competely anonymous. But investigation of audit trail of a particular digital note would be very complex and costly. So it would not be easy.
  7. Double spending is prevented because notes are automatically modified in the wallet of the sender which will not be accepted by another receiver’s wallet. No internet is required for a transaction to take place and notes cannot be sent through internet.
  8. No requirement of a blockchain database.
  9. It is neither an account-based nor a token based payment system.
  10. Notes can travel back to issuer- the central bank- and get destroyed by the central bank.