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:
- CBDC should not be a mutated version of Bitcoin type digital coin.
- 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.
- No account balance concept is introduced and therefore no double spending is possible.
- A holder is a legal owner unless proved otherwise.
- 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.
- 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.
- 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.
- No requirement of a blockchain database.
- It is neither an account-based nor a token based payment system.
- Notes can travel back to issuer- the central bank- and get destroyed by the central bank.