BUILDING CENTRAL BANK

DIGITAL CURRENCY
GROWTH OPPORTUNITIES AHEAD FOR
CENTRAL AND COMMERCIAL BANKS
CONTENT

Foreword

CBDC: Building the future of digital money

Launching a CBDC: One size does not fit all

CBDC developments and implications for commercial banking

In conclusion: Watch this space

Partnering with Capgemini on CBDC

Executive perspectives on CBDC

Authors and contributors

Appendices

Issued April 2023

2 Building Central Bank Digital Currency

FOREWORD

Despite the crypto winter, central bank digital currency development and experimentation continues to gain momentum. In
this paper, we look at the design and implementation of central bank digital currencies (CBDCs) around the globe and consider
real-world implications for retail, commercial, and central banks in terms of strategy, business models, organizational structure,
and technology.
While some crypto and decentralized finance organizations offer novel – some would say revolutionary – approaches to the
digital currency space, we view CBDC as but one of many elements fueling evolutionary digital ecosystem transformation.
Therefore, we explore CBDC and possible related financial market developments through the lens of existing banking
organizations and financial infrastructure providers.
A number of professionals working today on central bank digital currency projects and potential financial market infrastructure
changes have contributed to this report. The true scope of change ahead is hard to predict, and our aim is to present a
balanced, business-focused view on possible developments: we offer hypotheses on the trajectory of CBDC developments and
implications for commercial banking, rather than one hard and fast pronouncement on what the future of CBDC and financial
markets will be.
Please read on. We hope you find the information and points of view presented here to be useful and thought provoking, and
we’d welcome the opportunity for dialogue about your perspectives.
Sincerely,

Nilesh Vaidya
Global Industry Head – Retail Banking and Wealth Management
Capgemini

3
CBDC: BUILDING THE
FUTURE OF DIGITAL MONEY
Central bank digital currency (CBDC) generates broad public- and private-sector attention these days. However, attempts to
digitize fiat money to transfer value or to pay for goods and services are not new. US computer scientist David Chaum set out
to create an electronic currency that maintained anonymity when he founded DigiCash1 in 1989. The DigiCash concept and its
intent were similar to today’s public, decentralized ledger-based Bitcoin. However, DigiCash operated for less than a decade, as
Chaum unsuccessfully tried to convince banks to adopt its technology.
What distinguishes CBDC today is momentum. Digital currency ecosystems have benefited from the mass adoption of
digitalization during and after COVID-19. And as its infrastructure and technology mature, governments, individuals, and private
companies are working together to innovate and develop CBDC policies.

What differentiates CBDC

from other forms of money?
As the concept is relatively new and reference terms are CBDC differs from other forms of virtual money, such as
evolving at warp speed, a simple way to define CBDC is to cryptocurrency or stablecoin, from value, access, and issuance
compare it with other current, modern forms of money: perspectives:
• Cash - banknotes and coins • Cryptocurrency is issued/minted by the private sector and
• Digital or virtual money - currencies, stablecoins, generally is not backed by any underlying asset – its value is
commercial bank money contingent upon supply and demand.
What differentiates the digital currency of a central bank is • Stablecoins are private-sector currencies with value
that a CBDC represents its market’s fiat money in electronic backed by a regulated or recognized asset (fiat currency,
form. The central bank makes it universally available to commodity, etc.).
individuals and institutions. And as a digital liability of a We have illustrated differences between the various forms of
central bank, CBDC is backed by central bank reserves. Hence, digital currency through three criteria – universality, issuance,
monetary, trade balance, or foreign accounts directly impact and form – in Figure 1 below.2
its value.

Figure 1: Differences between cryptocurrency and CBDC

Source: Bank for International Settlements (BIS).

4 Building Central Bank Digital Currency

Key CBDC dimensions, definitions, and principles
In 2020, the Bank of International Settlement (BIS) published person. On the other hand, the launch of wholesale CBDC
guidelines for central banks looking at structuring CBDC for enables settlement of cash or other financial instruments
their fiat currencies, and included discussion of core CBDC between financial institutions (such as commercial banks,
features.3 We have grouped these features into five key pension funds, insurers) and/or large corporations.
dimensions:
• Retail use cases aim to improve financial exchanges
1. User experience: As with cash, CBDC should handle between individuals. Retail CBDC supports faster and
all types of payments and transactions – individual safer payments through performance attributes such
to individual, business to business ¬– conveniently as transaction speed, further inclusion, laser-focused
and instantly at any time. Offline payments should be economic stimulus or policies (helicopter money), or social
available when connections are lost or unavailable. benefits, such as contactless digital payments during
2. Inclusion: The CBDC system should be accessible to the pandemic.
everyone, everywhere. • Wholesale use cases aim to significantly improve
3. Affordability: For individuals or institutions, CBDC interbank financial systems by boosting performance and
transaction fees should be low or without charge. building interoperability between financial ecosystems
4. Safety: Personal information and CBDC transactions (e.g., end-to-end trade finance tokenization.)
should be encrypted, ensuring data remains private and
The convergence of retail and wholesale models might be
secure. Also, the CBDC system should be able to prevent
on the mid-to-long-term horizon as central banks envision
cyber-attacks and counterfeiting.
a unified payment infrastructure able to process multiple
5. Resilience: Operating models and infrastructures should
assets and instruments in several markets. Please refer to
enable rapid recovery from unexpected or unknown
the accompanying retail and wholesale use case examples for
conditions, such as operational failure or natural disaster.
further details of how these can work.
Current central bank experimentation and development is
looking at the development of two distinct kinds of CBDC:
retail CBDC will enable digital money exchange between
public/private institutions and individuals, or person to

RETAIL CBDC USE CASE WHOLESALE CBDC USE CASE

China is a CBDC development frontrunner. The Hong Kong, China, Thailand, and the UAE entered
People’s Bank of China (PBoC) has been testing a pilot phase for CBDC developments in Q3
its e-Yuan CNY digital currency since 2014. The 2022 via the Project mBridge trial platform, a
Renminbi (RMB, ¥ ) backs the centralized digital DLT-based platform to support real-time cross-
currency. E-Yuan’s primary function is to provide border payments. The project is among the first
domestic retail payments for public transport and multi-CBDC efforts to initiate and settle real-time
shopping. Travelers are allowed to hold e-Yuan via cross-border transactions on behalf of corporates.
registering an e-Yuan wallet through authorized Today, 20 commercial banks from four different
traditional banks and online banks in China. In jurisdictions have processed more than 160
addition, consumers make e-Yuan transactions payments and foreign exchange (FX) transactions
via payment platforms, such as WeChat, an e-CNY via Payment-versus-Payment (PvP), with a total
app launched by PBoC. A significant e-Yuan value of HKD 171 million (USD 218 million).
feature is that small-amount transactions are
Project mBridge participants include 20
entirely anonymous. However, large-amount
commercial banks, the BIS Innovation Hub Hong
transactions must be traceable. Following two
Kong Centre, the Hong Kong Monetary Authority
years of pilots in an increasing number of cities
(HKMA), the Bank of Thailand, the Digital
across China, 13.61 billion of e-CNY were in
Currency Institute of the People’s Bank of China,
circulation at the end of 2022, representing 0.13%
and the Central Bank of the United Arab Emirates.
of the total central bank money in circulation.

5
In addition to retail versus wholesale CBDC differences, Whether retail/wholesale or domestic/cross-border,
CBDC development objectives to date have also revolved proponents say central banks can achieve multiple key and
around either domestic payments or cross-border payment important objectives by establishing central bank digital
needs. Use cases around the globe have often opposed currency:
domestic experiments aimed at domestic local payment
rails enhancement in favor of wholesale cross-border use Maintain financial stability. CBDC provides a safe
cases to mitigate pain points arising from global interbank and secure platform for end users to place money. A
transactions. national reserve backs CBDC, which mitigates bankruptcy
or default risks. Moreover, information stored within
• Domestic CBDC facilitates digital payments between the CBDC blockchain network is encrypted to reduce
payer and payee within the same region only. cyberattack threats while retaining sovereignty.
• Cross-border CBDC is all about digital payments between
payer and payee based in at least two different countries. Lower transaction and operational costs. CBDC
However, most experiments are often complementary and reduces cross-border payment transaction costs, such
can be conducted in succession to integrate domestic and as exchange fees. In addition, the price of printing
international payment flows, which correspondent banking and storing bank notes and coins will shrink.
and foreign exchange controls disconnect. Please refer to the
Improve payment efficiency. CBDC payments are
accompanying domestic and cross-border use case examples
instant, regardless of type, boosting payment efficiency
for further detail.
and encouraging cross-border transactions.

DOMESTIC CBDC USE CASE CROSS-BORDER CBDC USE CASE

In October 2020, the Central Bank of The High cost and slow transaction time drive
Bahamas (CBoB) launched Sand Dollar, a CBDC cross-border CBDC settlement development. A
backed by Bahamian dollars. CBoB leverages precursor to Project mBridge, Project Inthanon-
Sand Dollar for retail and wholesale transactions. LionRock5 was a corridor network launched in
However, it is available exclusively for use by 2019 to connect CBDC blockchains between
Bahamians. Business travelers and foreign the Hong Kong Monetary Authority (domestic
tourists can transact and hold Sand Dollars payment network developed under project
by registering for a Tier 1 Sand Dollar wallet Lionrock) and the Bank of Thailand (domestic
while visiting the Caribbean Islands nation. The project network developed under project
governor of the Central Bank of the Bahamas Inthanon) to test cross-border payments at the
backed the Sand Dollar, aiming for financial wholesale level via a PoC platform. It was an
inclusion in an archipelago country where about ambitious attempt to facilitate a connection
20% of citizens lack bank accounts, especially in between two central banks/authorities to
some of the more remote islands, partly because enhance transparency, efficiency, and compliance
banks are reluctant to open isolated branches. when operating a digital corridor from the Thai
Baht (THB) / Hong Kong Dollar (HKD) cross-border
Commercial banks act as an intermediary between
payment network. As a result, participating
the Central Bank and end users to undertake
banks in Thailand and Hong Kong can transfer
the CBDC onboarding process and perform
international funds and foreign exchange (FX)
know your customer/anti-money laundering
transactions in real time. In its second phase,
procedures. Commercial banks also sponsor Sand
Project Inthanon-LionRock reported that the
Dollar digital wallets but do not keep a ledger
network reduced transaction time to two to 10
of individual holdings. Users can integrate Sand
seconds from three to five days. The prototype
Dollar accounts with private bank accounts
also reduced FX risk, exchange fees, compliance,
where traditional-channel cross-border payments
and treasury operation costs. The initiative
are available. However, by late Q1 2022, the
evolved into Project mBridge with the addition of
International Monetary Fund4 reported that Sand
the UAE and China, led by Chappuis Halder & Co.,
Dollars accounted for less than one-tenth of 1%
now part of Capgemini Invent.
of the money in circulation in the Bahamas.

6 Building Central Bank Digital Currency

Any widescale adoption of CBDC will begin with stakeholder
trust and confidence, which depends on global financial
CBDC and central bank activity
ecosystems demonstrating several overarching principles.
These are discussed below, and each of these motivational
today
objectives is country- or jurisdiction-agnostic. As of the start of 2023, 11 geographies had launched
production-mode CBDC initiatives, including Nigeria, the
Cybersecurity, scalability, and operational resilience Bahamas, Jamaica, Anguilla, Montserrat, Dominica, St.
CBDC ecosystems must be secure and resilient to Lucia, St. Vincent, and Grenada. In addition, China plans
cybercrime, fraud, and other operational risks to achieve to expand its pilot nationwide in 2023, giving 1.5 billion
trust, safety, and durability as a digital payments individuals access. As of December 2022, all G7 economies
foundation. They must be scalable to accommodate (Canada, France, Germany, Italy, Japan, the UK, the United
large transaction volumes to support mass adoption. States, and the European Union) had moved into phased
CBDC development.
Legal, governance, and data privacy and monetary
stability The New York Federal Reserve’s multiphase research effort to
Rigorous confidentiality standards are required to protect develop a technical framework for a wholesale CBDC, Project
user data in compliance with jurisdictional law, including Cedar6, is propelling the United States forward from research
open banking frameworks where applicable. Security to phased development. In 2023, over 20 countries will take
measures must be transparent, as with governance and significant steps to pilot a CBDC; Australia, Thailand, Brazil,
accountability frameworks. Enhanced fraud and know- India, South Korea, and Russia are among those that have said
your-customer (KYC) processes will improve efficiency and they will continue or begin 2023 test pilots.
accuracy globally. Designs should support the fulfillment
Please refer to this report’s Appendix for a regional CBDC
of public policy objectives and cause no harm to the
maturity grid.
international monetary and financial system, including
the sovereignty and stability of individual jurisdictions.

Cross-border functionality and digital economy and

innovation
Where relevant to fiscal policy, CBDC should enhance cross-
border payments to improve efficiency and open access
to safer and more cost-effective payment methods with
a commitment to mitigating global crime. Central bank
digital currency should support and catalyze responsible
digital economy innovation and ensure interoperability
with existing and future payment solutions. If fragmented,
CBDC will be as inefficient as disjointed fiat currencies.

Competition
CBDC should coexist with existing means of payment
and should operate in an open, secure, resilient,
transparent, and competitive environment that
promotes choice and diversity in payment options.

Environmental and Social Governance

CBDC infrastructure energy use should efficiently
support international net-zero economic commitments.
In addition, CBDC should contribute to financial
inclusion and provide access to payment services for
those excluded from or underserved by the existing
financial system. Relief organizations could leverage
digital currency to support international development
and humanitarian aid via the rapid, safe, and secure
release of global funding to distressed areas.

7
CBDC operating model design
While it is true that CBDC development initiatives Indirect or two-tier model
are extremely varied and in many different stages of
development, three distinct operating designs underlie all The indirect CBDC model is a two-tier financial system
currently evolving architectures – direct, indirect, and hybrid. in which the central bank outsources some tasks to
payment interface providers (PIPs) or commercial banks.
Direct or single-tier model Intermediaries back indirect CBDCs and provide cash-like
liability to retail consumers through their existing pool of
In the direct or single-tier CBDC model, central banks CBDC in a central bank. Central banks can delegate roles and
exclusively conduct all tasks and bear all responsibilities. This tasks according to the private sector’s strength and each
architecture enables central banks to issue and redeem CBDC geography’s financial maturity and needs.
while assuming all responsibility for system capabilities and
operations (BIS 2021). In this model, which is the basis of our current financial
model, intermediaries handle all types of communication
This model may seem lean and efficient, but recent central with retail or wholesale clients. Arguably, it is the more
bank experiences show that industrializing this model in the popular design.
short term may be highly unrealistic. Intermediaries, such as
commercial banks, play a significant role in driving innovation
in end-to-end financial processes. In addition to creating a
single point of failure, the model implies that central banks
have the vision, knowledge, and resources to support the
entire financial system.

Figure 2: Three primary CBDC operating designs

Source: Capgemini Financial Services, 2023.

8 Building Central Bank Digital Currency

 INDIRECT MODEL USE CASE
Project Aurum is a retail central bank digital currency (CBDC) prototype developed by the Bank for International
Settlements (BIS) Innovation Hub, the Hong Kong Monetary Authority, and the Hong Kong Applied Science and
Technology Research Institute. It consists of a wholesale interbank system and a retail e-wallet. The e-wallets
use an intermediated retail CBDC, and the interbank system uses CBDC-backed stablecoins. The CBDC is a direct
liability of the central bank, while the stablecoins are liabilities of the issuing bank. Aurum’s unique validator
system prevents bank over-issuance and user double redemption.7

Hybrid or intermediated model The emerging role of BigTech in

The hybrid or intermediated model combines direct and
indirect designs through which central banks and PIPs issue
CBDC
digital dollars fully backed by the central bank. This model The initial announcements of previously denominated Libra
allows for gradual change in consumers’ habits and offers (now Diem) by Meta/Facebook, making it the first Big Tech to
choice options, and the hybrid model has the most potential propose a global permissioned blockchain-based stablecoin
for product and service diversity. payment system, demonstrated the ambitions of Big Tech
to become a vital protagonist of a decentralized finance
For example, the digital yuan, or e-CNY token issued by the
future. This move by the social media giant has increased
Bank of China, could be a hybrid CBDC. Commercial banks
governmental and regulatory scrutiny worldwide on DeFi,
and payment service providers also handle the digital yuan’s
accelerating research and experiments on CBDC.
public interface by developing fund transfers, payments, and
settlement services applications. The European Central Bank (ECB) invited Amazon to
collaborate on a digital euro user interface prototype based
The choice of a CBDC operating model depends on the
on its e-commerce expertise. While European sovereignty
design pros and cons and the social and technological
remains top of mind, Big Techs’ user-base depth and
circumstances of the region or market. Trade-offs that may
infrastructure maturity make them valuable resources in
not be apparent nor easy to measure – such as considerations
building universally accessible, interoperable, and seamless
for resilience, security, and functionality – will be necessary.
CBDC ecosystems – ensuring quicker mass adoption and
Therefore, given the implications of today’s financial industry
better outreach. The ECB prototyping exercise aimed to test
– and the centralization of power and risk – a direct single-tier
how well the technology behind a digital euro integrates with
CBDC model may be unrealistic.
prototypes developed by companies.
The two-tier model is closer to what society is used to today,
Amazon, Meta/Facebook, or Google would also be relevant
allowing intermediaries and consumers to interact with
actors in identifying the best use cases and showcasing
central banks. On the other hand, if we look at progression
the benefits of integrating CBDC into ecosystems such
and flexibility, a hybrid model might be the first step for
as e-commerce. Of course, it will be the role of central
society to adapt to CBDC, yet also see the benefits of a
banks and regulators to ensure this contribution to the
direct liaison.
future of monetary systems guarantees a fair, competitive
environment for smaller players, to benefit all users.

9
LAUNCHING A CBDC:
ONE SIZE DOES NOT FIT ALL
Guiding principles and trade-offs
A CBDC designer must consider geography, the economic situation, policies, payments, identity infrastructure, risks, and,
most importantly, trade-offs between traditional and digital monetary systems. When developing a CBDC infrastructure,
wholesale or retail, central banks must first consider design implications. The design will affect business, technical, legal, policy,
and regulatory angles and necessitates a balanced approach. The following principles have been devised to act as a guiding
framework for central banks in CBDC development.

The implementation of new technologies – such as consideration of DLT use and public
versus private deployments – should be assessed regularly for benefits versus risks and
adopted only after looking carefully at potential performance, scalability, data security,
Value vs. risks
and privacy concerns. Central banks must uphold monetary policies when integrating new
currencies such as CBDC into payment ecosystems to ensure financial security, stability,
and sustainability.

Multiple operating models come under consideration when designing CBDC infrastructure.
Operating model vs. For example, the central bank will have to decide who owns the liability, how many
liability intermediaries it will onboard, and how much control it will cede to private sector partners.
Any CBDC introduction must ensure that all citizens and corporations can access this digital
Accessibility vs. legitimacy currency. Offline CBDC requires a protocol to handle potential disputes related to double
spending or transaction data reconciliation.

Know your customer (KYC) considerations are significant for regulators and central banks
Identity vs. privacy in regards to CBDC end users. Regulators must agree upon a base level of customer
identity needed for security while limiting privacy intrusion. CBDCs promise near-instant
Transaction times vs. settlement times between parties. However, cash movement, especially in bulk, requires
volatility regulation to ensure that sudden liquidity changes don’t impact markets and the global
economy.

While advanced features such as programmability and smart contracts can add CBDC
Upgrades vs. feasibility versatility, banks adopting technology should consider how end users will access CBDCs
without requiring special hardware or software.

New approaches should be compatible with the current systems to ensure synergies.
CBDCs can complement, rather than replace, existing payment rails. The payment rails
Coexistence vs. complexity of multiple geographies will be a consideration when developing cross-border CBDC
Accountability vs. infrastructure.
decentralization New systems should be able to enact a robust governance model with clearly defined
participant roles and responsibilities. Decentralization should not come at the cost of a lack
of accountability. Regulators must ensure sovereign control over the system.

CBDC platforms must be interoperable (with existing and other CBDC systems) to ensure
Interoperability vs. they function across geographies, regulations, and jurisdictions. Therefore, standards and
standards interoperability are critical considerations when adopting a platform to develop a design from
scratch.

While developing fail safes for CBDC systems used by a vast population, regulators must
Fail safes vs. security ensure robust governance and compliance checks to recover lost funds or damaged
wallets without risking victim identities.

10 Building Central Bank Digital Currency

Design considerations
Considering the trade-offs mentioned above, CBDC intermediary manages end-user claims, and the central
implementation designs are critical. The operating bank handles wholesale payments to intermediaries. As
design – direct, indirect, or hybrid/intermediated model – in traditional (physical) currency management systems,
underlying the architecture is a crucial decision for CBDC commercial banks distribute notes to the public and
implementation. Decisions will differ based on central bank verify transactions. They also manage account-keeping
involvement. For complete oversight, a central bank can and comply with KYC, anti-money laundering, and
adopt a single-tier (direct) model that performs all tasks – counter-terrorism regulations.
from issuing and distributing a CBDC to running wallets. • A hybrid (intermediated) model allows the central bank
Alternatively, in a multi-tier (indirect or intermediated) to maintain CBDC sovereignty, where there is a direct
model, the central bank issues and redeems the CBDC, with claim on the central bank. The central bank maintains a
distribution and payment services delegated to the private wholesale ledger, while commercial banks handle retail
sector – like the e-Rupee strategy the Reserve Bank of India transactions. The arrangement would help the central
is exploring. bank mitigate some risks with a resilient infrastructure
supported by intermediaries. Most CBDC pilots use this
• In a direct operating model, the central bank issues CBDC
model today because it is less disruptive than a single-tier
directly to end users and operates a ledger that records all
configuration.
transactions. Central banks own the CBDC infrastructure,
implementation, and distribution, allowing maximum Incentives for external players are critical to the design of a
control. However, constrained resources can be the multi-tier CBDC ecosystem. The business model should factor
trade-off. in revenue from fees, interest rates, cross-subsidization, and
• In an indirect model, the central bank issues CBDC controllable fixed and variable costs.
through intermediaries (commercial banks). The

11
CBDC technology building blocks coexistence, while CBDC–CBDC interoperability might be
essential for seamless cross-border payments.
While central banks have conducted considerable CBDC • Interoperability may be necessary for an indirect CBDC
experimentation, only limited production examples exist. As setup where the retail CBDC is a token-based system on a
a result, the overall book of knowledge on best-fit technology specific ledger. Meanwhile, the wholesale CBDC might be
choices for CBDC is still evolving. Adding complexity is account based using a different ledger.
potentially differing design choices and operating models • Alternatively, Algorand’s State Proofs and Inter-Blockchain
in different countries. Capgemini has been working with Communication8 (IBC) protocol can be applied to secure
ANZ Bank, SWIFT, Visa, several central banks, and financial interoperability between heterogeneous ledgers without a
management information systems (FMIs) to gain valuable trusted intermediary.
insights. What we can share is that all CBDC infrastructure
An essential aspect of CBDC is encapsulating the rich
development requires universal building blocks, often
payment context of ISO20022 within the solution. Therefore,
associated with DLT use; discussion of those key components
the ability to rapidly evolve interoperability is a significant
follows:
consideration – particularly regarding current features and
Ledger the future roadmap.
A ledger is a shared, immutable register that facilitates
Wallets
recording transactions and tracking tokens/assets in a
Wallets are the primary interface for end users and
business network. In the context of DLT, a ledger is often
custodians to manage and control token holdings.
associated with blockchain technology characteristics.
Security: Wallets require incredibly high security; and
Consensus
protocols have evolved considerably from the paradigm of
Central banks will have multiple consensus mechanisms, each
hot storage, cold storage, hardware wallet, etc., to techniques
providing a different calibration of speed, scalability, and
such as multi-party computation. CBDC proponents say these
finality. When selecting the ledger, it is essential to consider
contemporary techniques can be more secure than fiat when
the consensus mechanism(s) it offers and ultimate trade-
combined with confidential computing.
offs based on use cases, e.g., transaction volume versus
transaction value versus security. Recoverability: A recoverability mechanism is critical if a
device is lost, etc. Protocols must be safe and quick to earn
Smart contracts
the confidence of the vast numbers of CBDC users. Wallet
CBDC solution programmability depends on smart contracts.
infrastructure service providers must balance security, user
Therefore, the CBDC technical platform must provide a
experience, and asset recoverability.
robust mechanism for maintaining smart contract integrity,
consistency, and availability, including constructs to upgrade/ Access: While banks conceptualize CBDC wallet
change the contracts without affecting the global state. infrastructure, wallets can also hold tokenized assets
(tokenized bonds, digital identity tokens, etc.). Agile wallets
Privacy and confidentiality
will consider access beyond CBDC.
Privacy is fundamental to building end-user trust, and banks
must consider it within the design. Privacy and ID verification Account-based and token-based design
systems will differ based on account vs. token-based Irrespective of architecture, an account- or token-based
approaches. However, some central banks aim to offer the design can be adopted. These two models have different
same level of privacy and anonymity to CBDC transactions as economic implications and ramifications that designers
are available via cash transactions. must carefully consider. The design choice will depend on
how much authority the central bank will retain regarding
Security
consumer identities.
The ledger should be able to upgrade its cryptographic
algorithms as more secure quantum-resistant algorithms • Account-based design will require end-user ID verification
come along in the future. Cryptography protects ownership where the central bank can keep track of all transactions.
and non-repudiation characteristics, and ensures that banks While this can increase financial inclusion, it comes at the
can upgrade safety elements over time. cost of complex governance and infrastructure issues.
• Token-based design enables anonymity because the bank
Interoperability
records only issuance and redemption. However, end
Interoperable networks are required to ensure seamless
users can transfer ownership through public/private key
operations among CBDC systems and between CBDC and
pairs without being documented in a database. A token
fiat-currency systems. However, interoperability remains a
approach can reduce central bank bureaucracy; however,
work in progress.
the decentralized nature of the network can cause
• SWIFT and Capgemini are working to achieve cybersecurity issues.
interoperability between CBDC–fiat and CBDC–CBDC
networks. CBDC–fiat interoperability can ensure

12 Building Central Bank Digital Currency

Orchestrating a CBDC ecosystem • Technology partners work with central banks and
intermediaries to develop platforms required for CBDC
While central banks decide on the operating model and the adoption.
type of CBDC to introduce, they must also partner with many Necessary expertise includes security, infrastructure, data,
stakeholders to develop CBDC infrastructure within a country compliance, and, most critically, integration into existing
or geography and ensure its connectivity at the global level. core systems and processes.
This collaboration is already happening at domestic and • Consumers – Typically, end users for retail CBDC will be
international levels. individuals; and for wholesale CBDC, end users might
include institutional investors, corporate and investment
Central banks partner with retail banks, FinTechs, and other
banks (CIBs), or other asset-servicing firms. How and when
technology providers beginning even at the exploratory
consumers consider using CBDCs against digital or fiat
phase to share learnings to ensure ecosystem readiness
currencies will drive CBDC adoption.
and streamline the adoption journey. In addition, central
banks collaborate with multiple banks and regulators to – Cultural shifts and education and training will be
ensure seamless CBDC cross-border payments. As but essential to CBDC consumer engagement.
one example, Project mBridge is a collaboration between
– In institutional markets, we expect buy-side asset
banking authorities in Hong Kong, Thailand, China, and the
management firms to seek exposure to digital
UAE to develop a blockchain for multi-currency cross-border
assets denominated and traded in CBDC and CIBs,
CBDC payments.
acting as issuers and market makers for these asset
When working together on CBDC solutions, ecosystem classes. Moreover, large asset-servicing banks that
partners typically play the following roles: provide custody solutions for digital assets will also
become significant users for CBDC.
• Central banks will formulate regulations and act as a
stakeholder that owns CBDC liability. They can handle all Other essential ecosystem partners are regulators that
operational aspects of a CBDC program or delegate to create and maintain legal and security frameworks and
intermediaries as appropriate. merchants – large and small – who will assess the relatability
• Retail banks form a distribution layer to end consumers of CBDC value propositions before investing in ancillary
and can drive innovation through CBDC value-added technology and equipment.
services. Retail banks and FinTechs might see CBDC as an
additional revenue stream through payments, safekeeping,
exchange, and loyalty-type services.

13
CBDC DEVELOPMENTS AND IMPLICATIONS
FOR COMMERCIAL BANKING
Given local, regional, and global agendas – mandates, markets, and end users already have choices among
authorities, objectives, motivation, technology, and central incumbents and FinTech challengers to benefit from price and
bank processes – let us agree that a CBDC initiative may take service. Therefore, CBDC design becomes critically important.
multiple approaches, shapes, and timelines.
CBDCs will not be interest-bearing assets. And commercial
Monarchies and sovereign states have issued currencies from banks will propagate monetary policy. Primarily, CBDC will
time immemorial. When upstart crypto firms had similar offer a safe and stable alternative to cryptocurrencies.
aspirations, it was time to plan a sovereign alternative. Banks will accept and process CBDC as fiat. Of course,
The sovereign option supports efficient monetary policy cryptocurrencies as speculative assets can have a life of their
transmission and the general welfare of citizens. The CBDC own. CBDC may supplant stablecoins underpinned by a fiat
concept involves retaining sovereign control while enabling currency.
the banking system with next-generation technology.
Talk of banking system disintermediation or replacement
with crypto upstarts is without merit. CBDC will not compete
with commercial banks. It is part of the historical progression
from minted precious metals, to paper currency, to electronic
currency transactions.
• CBDCs have to provide an effective alternative for the
peer-to-peer payment offered by cryptocurrency yet retain
most of the characteristics of the current fiat currency. In
addition, the anonymity of cryptocurrency transactions
is overrated. The FBI traced transactions to resolve
cryptocurrency thefts. These considerations will drive the
design of retail CBDC.
• Reducing friction in international payments – including
trade finance, cross-border payments, and remittances –
drives wholesale CBDC design. Further, wholesale CBDC
is a competitive arena for increasing the use of sovereign
currencies. It is similar to the competition among fiat
currencies in the current environment.
• In addition to functional considerations, CBDC will support
existing anti-money laundering and currency control goals.
Moreover, governments could use CBDC to collect taxes,
make benefit payments, and pay bills.
Given this inclusive definition, does CBDC compete with
current payment systems – and is cannibalization possible?
It is unlikely that CBDC will compete with fiat, and the
system we know will continue to exist and grow. However,
introducing central bank digital currency gives citizens a
viable alternative to cash and often risky, unregulated crypto
and private tokens. The objective of CBDC is not to replace
regulated banks, but to give citizens a safe option. As media
headlines expose the failures of private digital currencies
erroneously touted as centralized and secure, central banks
are stepping up to offer government-backed legal tender
that instills public trust.

CBDC, banks, and payments

It does not make sense for central banks to act as deposit-
taking institutions and offer retail banking services and
payments: it is the commercial banks that have hundreds
of years of experience. Moreover, commercial banks are
regulated, so replicating what already exists wastes scarce
investment dollars, especially given know your customer/
anti-money laundering concerns and various regulatory
frameworks. Further, banking and payments are competitive

14 Building Central Bank Digital Currency

CBDC and retail payments the appropriate changes to serve this population
segment cost-effectively.
We envision a world where CBDC coexists with existing digital
fiat currency; it will provide a universally available option for – Not surprisingly, financial inclusion often goes
digital payments in a country. It can accelerate the push to hand in hand with digital inclusion. Individuals on
a cashless economy while providing everyone with a digital the periphery of mainstream society may not have
payment alternative. As a result, the embedded payments internet access or lack the confidence to begin.
ecosystem can rapidly accelerate. An increase in low-value Therefore, CBDC educational programs and offline
payments will raise the bar on commercial banks’ approach CBDC should be considered.
to processing payments cost-effectively. Current archaic • Direct-to-citizen government subsidy: Most countries
payment architecture may have to be radically simplified to have complex government mechanisms to provide
support CBDC payments. subsidies and welfare payments to citizens. There are
CBDC will enable simple payment processes to settle digital layers of businesses involved in delivering subsidies and
transactions like cash operations versus credit cards or welfare payments. A CBDC smart contract could eliminate
payment mechanisms. Commercial banks will accept and process complexity.
process CBDC as fiat while offering a safe, stable crypto
alternative. Let’s review a number of CBDC use cases: • Crowdsourced lending: Although highly touted,
decentralized finance (DeFi) is still nascent. It can offer
• Peer-to-peer payments: Central bank digital currency limited crowdsourced lending without the judicious credit-
should allow direct P2P payments without fees from decision protocols banks use. However, recent crypto firm
individuals’ bank accounts. We envision a world where debacles have demonstrated that self-regulation is grossly
CBDC harmonizes with existing digital fiat currency. insufficient. Attempting crowdsourced lending with
CBDC can provide a universal domestic option for digital CBDC would be even more difficult. Therefore, we don’t
payments. Strictly speaking, we don’t need a CBDC anticipate adoption at scale anytime soon.
for P2P payments. Schemes supporting account-to-
account transfers are sufficient and already used in some These use-case examples indicate that while CBDC can
countries. Players charging fees for payment transfers may address some pressing needs, other viable options can
challenge a CBDC that attempts this use case. It is not a deliver similar outcomes. Moreover, each use case needs
technology challenge, and a technology solution cannot a concurrent resolution of different challenges. National
bring resolution. Only a national authority can enforce authorities must drive industry-wide transformation along
change. Besides the political challenge, an increase in with CBDC for these use cases. Commercial banks also need
low-value payments will raise the bar on the commercial significant investments and technological change to support
bank’s approach to processing payments cost-effectively. many areas.
The current archaic payment architecture needs radical Cross-border peer-to-peer payments seem the most viable
simplification to support these CBDC payments. use case. Demand for P2P will likely spark industry change.
However, other use cases may have a long journey ahead.
• Financial inclusion: In mid-2022, the World Bank9 reported
that 1.4 billion individuals remained unbanked globally. CBDC and wholesale payments
However, it noted that 76% of adults worldwide had an
account in 2022, up from 51% a decade ago. In the United While incumbent commercial banks and payment processors
States, unbanked adults say they cannot meet minimum have to shoulder much investment for the public good in the
balance requirements, do not trust banks, have privacy case of retail CBDC, the situation is different for wholesale.
concerns, or do not want to pay high banking fees.10 While Commercial banks may readily support the adoption of
CBDC is not essential for financial inclusion, it can lead to wholesale CBDC due to potential revenue generation and
significant inclusion. cost reduction opportunities. In addition, cross-border
payments and trade finance transacted with CBDC may
– In the cashless economy, CBDC can substitute potentially resolve operational issues around reconciliation
cash. For instance, unbanked individuals can access and reporting.
electronic payment processes at commercial
establishments. Governments could directly provide Correspondent banks and the need for human intervention
subsidies through CBDC. The underlying smart for reconciliation impede cross-border payments and
contracts can direct how the receiver spends the increase costs. Anti-money laundering and combating
money. This change has the potential to simplify terrorism financing (AML and CTF) add operational
many welfare and social security schemes. However, processing. CBDC, with verifiable first-party information,
we won’t delve into the smart contract aspect of can address many of these challenges. SWIFT changes that
CBDC in this paper. A government-to-population, support CBDC transactions on existing payment rails (a
direct subsidy transfer can bring people closer SWIFT-Capgemini project) and architectural simplifications to
to consumer financial products such as credit provide transaction traceability through intermediaries can
cards and savings accounts. Banks need to find simplify operational challenges and reduce reconciliation.

15
CBDC and sustainability impacts Opportunities and challenges
If CBDC becomes a digital fiat for decentralized finance and
applications such as cross-border payments, its potential to
for commercial banks
support sustainability is tangible. The case is especially valid Let’s assume that indirect and hybrid models are the most
if central banks don’t undertake token burns or consensus likely way forward, given the potential impact of CBDC on
mechanisms to create a digital currency. overall financial stability and monetary policy transmission.
In hybrid models (in which central and commercial banks
And because central banks underwrite the legitimacy of can both issue interest-bearing CBDC to end customers), the
CBDC, it does not need to prove authenticity through environment could challenge access to retail bank deposits
technological structure. Therefore, CBDC does not require and weaken balance sheets – thus threatening the ability
the energy-intensive consensus or mining mechanisms a to lend.
cryptocurrency uses, and its energy consumption is lower
than a credit card system. CBDC designers can leverage However, given the direction of most central banks so far
various solutions, including real-time gross settlement and the realization of the impact of intermediation, we
(RTGS), DLT, or a combination. Careful deliberation to meet believe that amid checks and balances, commercial banks can
objectives and implications will be necessary and significant, leverage this new paradigm to promote product innovation
as CBDC can catalyze financial innovation. and enhance customer experience.

Financial Organizational
Strategy/Business Model Technology
Product Structure

Retail • CBDC raises electronic payment volumes • Fiat currencies and • CBDC built on top of
payments while decreasing card volumes CBDC are not fungible existing commercial
• Banks compensated for their distribution • Firms will need to payment services
role alone duplicate account and cash
• CBDC initiatives may likely open management and • Only at banks that
distribution to newcomers and payment rails decide to leave some
increase competition parts of the market,
• The accelerated shift from cards to CBDC may not offer
account-to-account will impact cards’ rationalization
interchange revenue opportunities

Wholesale • Reduced costs will encourage new • Increased efficiency • Streamlined E2E
payments entrants and threaten the position of will shrink Nostro11 to link domestic
historically dominant correspondent reconciliations and and cross-border
(intermediary) banks FinCrime/AML12 costs payments; impacts
• Disintermediation as FIs may no longer to SWIFT, ACH/RTGS
require intermediaries for cross-border expected
payments

Lending • As some consumer deposits move into • CBDC will reduce • Changes limited to
CBDC, commercial bank deposits may lending volumes based asset and liability
shrink on commercial deposits management and
• Lending capacity is affected (Basel III)13 • Banks will do less asset distribution
• Credit bundled to card payments must be transformation and
re-bundled in the new context resell their assets into
• Credit card business models reinvented the market (or European
Central Bank)

16 Building Central Bank Digital Currency

Trade finance & • CBDC may be one of the most relevant • CBDC will encourage • Banks will need
supply chain strategic areas in terms of DLT/ more transversal product to review their
DeFi innovation teams across business and end-to-end trade
• It presents opportunities to integrate technology finance and supply
fragmented/costly value chains with CBDC chain financing
ecosystems to digitize end-to-end from ecosystems
documentation to issuance or settlement and build
• CBDC will enable banks’ existing trade interoperability in a
finance products (LCs, guarantees) highly fragmented
to be distributed to a more extensive industry
customer base thanks to inclusion in
trade ecosystems
• Lower barriers to financial inclusion can
bridge the finance gap for SMEs via better
outreach and cost-effective loans

Liquidity & • Corporations have long sought solutions • CBDC could impact • Connectivity
treasury giving them 360-degree views of their the way banks manage to local and
global cash pools and fast cross-border overall liquidity from a international
treasury management risk perspective financial systems
• For instance, JP Morgan allows corporate and market
subsidiaries to leverage JPM coin14 infrastructure to
for treasury management, enabling be reimagined
near-instant liquidity management under CBDC
at the global level and real-time architecture
cross-border payments
• CBDC (especially interest-bearing CBDC)
might also increase competition in
attracting deposits and affect access
to liquidity and the ability to provide
financing

FX • Some emerging cross-border CBDC • Delivery versus payment • Connectivity

transactions platforms aim to embed FX markets and (DVP) 15 will remain as to local and
liquidity mechanisms (e.g., mBridge), a method to mitigate international
enabling new entrants to become counterparty risk (CLS) financial systems
market-makers • Handling by and market
correspondent banks infrastructure may
will continue as CBDC be reimagined
remains in its jurisdiction
• The emergence of
cross-border payment
rails linked directly with
domestic rails could
drastically reduce
the need for Nostro/
Vostro reconciliations16
– and how banks
manage liquidity
• CBDC will also affect the
governance of overall
international flows
(e.g., the correspondent
banking model)

17
There are several areas in which CBDC might boost
commercial bank revenues. From a wholesale perspective,
integrating end-to-end financial chains and interoperability
will drive CBDC adoption. If commercial banks industrialize
current cross-border experiments to facilitate market-making
activities on CBDC FX transactions, they could generate
revenues currently concentrated on US dollar flows and
correspondent banking.
• Additionally, banks that embrace novel digital models
by participating in new ecosystems can access a broader
customer base. This opportunity is especially significant in
trade and commodity finance or supply-chain financing,
where several initiatives are maturing (shipping, digital
LCs, insurance, etc.). Adding CBDC-based settlements (the
last missing building block) could integrate the complete
value chain.
• Some commercial banks that are at advanced stages of
developing similar innovations with stablecoins (e.g.,
JPM coin) could direct investments toward connectivity
with domestic or cross-border CBDC infrastructures and
propose their platforms as Banking-as-a-Service.
From a retail perspective, CBDC could help forge new
customer relationships beyond the scope of traditional
deposit/lending banking activities. It could help foster
financial inclusion and access untapped customer segments
in geographies with significant unbanked populations
without needing a bank account (such as the retail CBDC
experiment in Nigeria).
Central bank digital currency could pave the way for wallet
innovations or CBDC custody by providing super-apps giving
access to a broad range of integrated financial and non-
financial services, leveraging Web3 capabilities. For instance,
banks could leverage digital currency’s programmability
features to distribute rewards spendable under certain
conditions (via specific outlets or to particular populations).
It would enable user experience enhancements in payments
with frictionless, instant payment transactions.

18 Building Central Bank Digital Currency

IN CONCLUSION
Even in the near term, future developments in central bank digital currency are hard to predict. It may be
that we are closer than ever to a world in which CBDC is built, fully launched, and gains real traction in the
marketplace – and as a result, helps reshape the global banking industry and how it operates. But CBDC critics
and naysayers also abound.
• Although each market has its own societal and economic challenges, it seems almost all central banks want
to explore the CBDC opportunity and not be left behind: indeed, 114 countries – representing 95% of global
GDP – are engaged in CBDC research and development, pilots, or actual digital currency launches. However,
it is incumbent upon central bankers to collaborate with ecosystem partners to ensure they do not replicate
fiat inefficiencies within new digital currencies.
• For commercial and retail banks, CBDC may reduce transaction and operational costs, simplify cross-border
transactions, and improve overall payment system efficiency. It may offer a viable alternative to cash and
often risky, unregulated cryptocurrency options; and even new revenue-making opportunities may arise.
• And for wholesale and individual bank consumers, widespread adoption of CBDC will begin with stakeholder
trust and confidence. Security, resiliency, and accessibility are but a few of the key promises that CBDC
needs to deliver on.
The continuing CBDC journey bears attention and is definitely one worth following. Stay close to continuing
developments, and see what opportunities CBDC may offer for you.

19
PARTNER WITH CAPGEMINI ON CBDC
Capgemini draws on its deep payments expertise and experience in global blockchain technology implementation to strategize,
design, and pilot central bank digital currency use cases. Since 2021, we have delivered various CBDC programs globally, covering
retail, wholesale, hybrid, and interoperability scenarios, in partnership with central banks, commercial banks, FinTechs, and other
technology partners.

We offer support in two CBDC development essentials:

1. Strategy, design, and road mapping: When it comes to CBDC, one size doesn’t fit all. Hence, we offer a tailored,
concentrated, insightful consulting engagement solution to accelerate CBDC journeys or validate strategy through
an objective lens. We provide market research and benchmarks, engage stakeholders through use case exploration
workshops, support business case development, and coordinate ecosystem engagement with regulators, commercial
banks, and technology providers. In short, we help participants make critical trade-off decisions during CBDC strategizing
and create a line of sight from ideation to roadmap.
2. Pilots and enterprise enablement: We bring CBDC strategy to life through this offer. Cagpemini’s tested approach
identifies qualified technology and data partners, builds and nurtures sandbox environments, and connects with third
parties through application programming interfaces (APIs). A tech-focused squad and industry expertise lead to CBDC
pilot deployment. Then, we provide post-deployment support and communication, industry showcases, and points of view
with frameworks that capture critical learnings. Our offers leverage cloud, dApps, SWIFT TMP messaging, open APIs, and
custody. And they are fully integrated, so the CDBC may be piloted and tested in real-world enterprise scenarios.

20 Building Central Bank Digital Currency

Capgemini CBDC case studies
Central bank digital currency has broad implications, from monetary policy to financial inclusion. Therefore, many of our case
studies are confidential, so we encourage you to contact us. However, the illustrative examples below showcase the breadth and
depth of our CBDC value proposition.

CBDC Type Case Study

Retail Global retail CBDC challenge – Monetary Authority of Singapore (MAS)

In partnership with Australia and New Zealand Banking Group (ANZ Bank) and other ecosystem
participants, we supported the development of retail CBDC scenarios through the National
Integrated CBDC Ecosystem solution (NICE). The Capgemini solution was among the top 15
featured in the 2021 Global CBDC Challenge report published by MAS.17
We worked with a set of ecosystem partners to assist the bank in developing use cases and
user journeys for a two-tier retail CBDC model connected to the National ID. Through NICE,
we demonstrated offline transactions, programmable wallets, atomic settlement, and faster
consumer-to-government (C2G) and government-to-consumer (G2C) payments.

Wholesale Wholesale CBDC use cases

A large central bank in APAC was embarking on a multi-year strategic CBDC program to test
feasibility and experiment with wholesale CBDCs for payments and settlements between
central banks’ regional commercial banks in both pull and push models. Capgemini partnered
with digital finance consortium R3 to demonstrate CBDC use cases for the central bank,
engaged the broader banking ecosystem in the region, and built pilots around wholesale CBDC
use cases.
The program’s objectives were to unleash CBDC potential, align use cases to policy objectives,
and prepare a roadmap to accommodate a broader ecosystem.

Cross-border CBDC-2-CBDC transactions between DLT networks

SWIFT and Capgemini achieved CBDC-to-CBDC transactions between distributed ledger
technology networks based on Quorum and Corda technologies, fiat-to-CBDC flows, and
a real-time gross settlement system. Further, our experiment proved that we could link the
blockchain networks for cross-border payments through a single gateway.
Additionally, SWIFT’s new transaction management capabilities could orchestrate all inter-
network communication. As a result, 14 central and commercial banks are collaborating in a
testing environment to accelerate the path to full-scale deployment.

21
EXECUTIVE PERSPECTIVES ON CBDC
How will CBDC change banking?

“Our observation from being deeply embedded in central bank pilots across our extensive network is that the next 2–3 years is likely
a ‘sprouting’ phase as central banks accelerate CBDC exploration and proofs of concepts. Material-scaled infrastructure will likely
take more time. And we anticipate multi-CBDC interoperability to mature over the next few years.”
Weikai August Phang, Executive Director, Digital Currency Products, Standard Chartered, Singapore

What are the near- and long-term effects of CBDC on commercial/universal banks? Will CBDC draw deposits away from banks?

“The impact of CBDC on banks will vary depending on the CBDC issued by central banks. If it’s a wholesale CBDC, the effects on
commercial banks will be less significant as they can operate similarly as before and issue bank-grade stablecoins as commercial
money on blockchains. Therefore, commercial banks could benefit from reduced settlement costs and increased efficiency.”
Daniel Coheur, Co-founder & Chief Commercial Officer, Tokeny, Luxembourg

Potential benefits of CBDC?

“The potential digital euro would fill a missing block in the European single-market objective. This new pan-European digital
payment system could materialize into a strategic opportunity for the payments industry used in international trade, in coexistence
with other jurisdictions’ digital currencies. It represents a new payments ecosystem, built in collaboration with the whole community
of stakeholders, in a very challenging timeline.”
Sylvie Calsacy, Head of Public and Regulatory Affairs, Worldline Global, Paris, France

“Distributed ledgers could digitalize securities’ DVP by bridging both transaction legs with the same or interoperable technologies.
Financial institutions could cut costs and reduce potential DVP-related risks because settlement time would be swift. Wholesale
CBDC could be an innovation game-changer for securities settlement based on DLT. Given that wholesale transactions raise fewer
regulatory issues than retail – and regulators would already supervise wholesale CBDC users – it would be easy for central banks to
conduct wholesale CBDC experiments.”
Stéphane Blemus, Secretary General of Forge by Société Générale

Have you participated in strategic forums about design processes and use cases?

“We are working with the Eurosystem on designing the digital euro for the Euro Area. Cross-border use of the digital euro is not a
priority, although the design considers Central and Eastern European and EEA citizens to have access in subsequent releases.”
Petia Niederländer, Director of Payments, Risk Monitoring, and Financial Literacy, Austrian National Bank (OeNB)

22 Building Central Bank Digital Currency

 How should banks prepare for the commercial launch of CBDC?

“Digital currencies can potentially make cross-border payments cheaper, faster, safer, and smarter. This has prompted most of the
world’s central banks to explore or start developing CBDC. At the same time, commercial banks can also reap similar benefits by
offering commercial bank money in a digital form to customers. At Onyx by J.P. Morgan, we have been at the forefront of this
journey since 2014. And today, we offer deposit accounts on our blockchain platform that enable our financial institution and
corporate customers to reap the benefits of real-time 24/7 payments across borders and with smart programmability features.”
Naveen Mallela, Global Head of Coin Systems, Onyx by J.P. Morgan

How should CBDC be offered to customers? Describe the last-mile experience.

“Regarding the digital euro, there are current conversations that merchants shouldn’t have access. So there will be some impact, but
not much because, as you’re aware, payments are not the most profitable product banks provide.”
Executive from a large European bank
“Last-mile connectivity will embark on existing channels and be managed carefully for a smooth transition to mobile-based. Initially,
there will be a need for CBDC in cards. Consumers are used to cards, and they will not disappear soon – and merchants’ terminals
can’t be replaced at once. So the value to merchants will be key to achieving CBDC success.”
Gerard Hartsink, Chairman of the Industry Advisory Board of the Digital Trade Standards Initiative
International Chamber of Commerce, Netherlands

Privacy concerns?

“No. In democratic societies, CBDC should not spark privacy concerns, and participants must enact appropriate guardrails and
policies to prevent surveillance. These policies should be enforced in the technologies used – to alleviate privacy concerns further.”
Jonathan Dharmapalan, CEO, ecurrency, San Francisco Bay Area
“Collecting data on users is a design consideration. When a digital asset is issued, tracking is possible but not required. Most CBDC-
issuing governments are designing CBDC to act like cash, so they will not track users. There is some nuance to this question,
however. One benefit of a digital currency is that it can alert authorities to bank runs before they become complete system shocks.
So collecting data at a very high level (not at the individual level) can make a system more stable.”
Alisa DiCaprio, Chief Economist, R3, New York

Will a single-data CBDC dashboard aid data gathering and cleansing, which will support administering monetary policy?

“Yes, blockchain is resilient by redundancy, which means it is not efficient per se. However, it solves problems of trust. For example, in
the case of CBDC, issuance is restricted to the central banks, which resolves the trust issues – alternatively, financial market stability
is endangered.”
Petia Niederländer, Director of Payments, Risk Monitoring, and Financial Literacy, Austrian National Bank (OeNB)

23
ABOUT THE AUTHORS

Nilesh Vaidya Sudhir Pai

Global Head of Banking and Capital Markets EVP | CTIO Financial Services SBU
[email protected] [email protected]
Nilesh has been with Capgemini for 20+ years Sudhir leads Capgemini’s Decentralized Futures
and is an expert in managing digital journeys for Technology domain, focusing on CBDC, digital
clients in the areas of core banking transformation, assets and tokens, Web3, and associated blockchain
payments, and wealth management. He works with protocols. With 25+ years of global IT service
clients to help them launch new banking products industry experience in diverse technology, delivery,
and their underlying technologies. and engagement roles, Sudhir is a thought leader,
speaker, blogger, and business advisor for finance
industry CXOs.

Sankar Krishnan Kary Bheemaiah

Head Digital Assets & FinTech Chief Technology and Innovation Officer,
[email protected] Capgemini Invent & Co- Metaverse-Lab lead
[email protected]
Sankar is celebrating his eighth year with
Capgemini. A career corporate banker with Kary is the Chief Technology and Innovation
Citigroup and Standard Chartered, he directs Officer (CTIO) at Capgemini Invent. He helps define
go-to-market planning for Capgemini’s digital asset business and sectorial implications of emerging
solutions strategy. technologies of strategic importance to Capgemini
and its clients. Additionally, Kary leads blockchain
and WEB3 initiatives and co-leads Capgemini’s
Metaverse Lab. He is the author of The Blockchain
Alternative: Rethinking Macroeconomic Policy &
Economic Theory and is a TEDx speaker (Rethinking
Capitalism with the Blockchain - Paris 2017).

Gerard Jacob Christophe Vergne

UK Head of Capgemini Invent - Capital Markets Cards and Payments SME (Europe)
[email protected] [email protected]
Gerard is responsible for Capital Markets strategy Christophe played a critical role in building
and advisory covering regulatory and business- Capgemini’s global payments transformation
driven change initiatives. His background includes capability. He has co-authored the World Payments
electronic trading, structured products, and Report for the past decade.
innovation.

Guillaume Rico Elias Ghanem

Senior Director, DeFi Tranformations, Asia Global Head of Capgemini Research Institute for
[email protected] Financial Services
[email protected]
Based in Hong Kong, Guillaume leads DeFi
consulting transformations in Asia. He is a financial Elias is responsible for Capgemini’s global portfolio
services innovator with pioneering involvement of financial services thought leadership. He has
in Asian Central Bank Digital Currency initiatives, more than 20 years of experience in FS, focusing
commercial banks, regulators, and technology on effective collaboration between banks and the
leaders. In addition, Guillaume is a FinTech start-up ecosystem.
ecosystem mentor, thought leader, speaker, and
author.

24 Building Central Bank Digital Currency

Special thanks for the contributions of many Capgemini subject
matter experts:
Muhammed Ahmed, Mohua Banerjee, Pierre-Olivier Bouée, Moe Carrim Ganey, William Fowles,
Cyril François, Jeroen Hölscher, Peter Katsos, Laurent Liotard-Vogt, Ravi Pherwani, Venugopal Psv,
Steffen Reidt, Mathias Ros, Rishabh Shah, Chirag Thakral, and editor Tamara McKinney Berry.

25
APPENDICES
The CBDC maturity index

MARKET/ MATURITY STAGES KEY

SUMMARY STATUS
REGION RESEARCH DEV PILOT LIVE PROJECTS

Projects The FED has not formally decided to

UNITED Hamilton & proceed with CBDC but is accelerating the
Wholesale & retail
STATES Cedar, Digital exploration of benefits and risks from
Dollar various projects and research over 2023.

BoC has not confirmed a plan to release a

Project Jasper CBDC but has advanced research and
Wholesale
CANADA & retail
and MIT development work since 2017 and, in late
partnership 2022, launched a public consultation
process.

mCBDC Bridge In progress: advanced domestic and cross-

Digital border payment network pilots via digital
Wholesale Currency currencies. China began its e-CNY pilot in
CHINA & retail Electronic 2019. As of December 2022, there were
Payment 13.61 billion e-CNY in circulation, worth
(DCEP) ~USD 2 billion in Q1 2023.

Projects Stella The Hong Kong Monetary Authority is

Wholesale & Aurum, eHKD involved and well-progressed in retail and
HONG KONG & retail /e-CNY mCBDC wholesale CBDC use cases through its
Bridge e-HKD and mBridge projects.

Bank of Japan is developing a retail CBDC

PoC and undergoing functionality testing
Wholesale
JAPAN & retail
Project Stella in 2023. BoJ is involved in cross-border
research through its work with the
European Central Bank on Project Stella.
Projects Ubin &
A project and pilot leader: MAS’s Project
Dunbar, Jasper,
Orchid report outlines a path for CBDC
Onyx/Multiple
SINGAPORE Wholesale & retail
wCBDC, Project
development in 2023 and 2024, including
use cases and ledger technology
Mariana, MAS
recommendations.
Digital ID
The European Commission is to publish a
digital euro bill in May. The European
Digital euro, Central Bank has not decided whether to
Wholesale
EUROZONE & retail
Projects Stella issue a CBDC; however, the commission
& Mariana said new laws might be required to assert
a digital euro’s status as legal tender and
to set AML rules.

The Bank of England finished its research

and exploration phase of a potential
CBDC in Q1 2023. BoE concluded that
Great Britain would need a digital pound
GREAT Participation
Wholesale & retail ultimately. Phase II may take two to three
BRITAIN with BIS
years, after which BoE will decide
whether or not to begin building CBDC
infrastructure. BoE says Britcoin could be
ready by 2030.

In collaboration with the Digital Finance

Research Cooperative Research Centre,
Wholesale Projects Atom
AUSTRALIA & retail & Dunbar
the Reserve Bank of Australia outlined
technical and policy requirements and a
pilot of retail CBDC planning in early 2023.

26 Building Central Bank Digital Currency

 MARKET/ MATURITY STAGES KEY
SUMMARY STATUS
REGION RESEARCH DEV PILOT LIVE PROJECTS

The Reserve Bank of New Zealand (RBNZ)

published commentary on its CBDC
NEW ZEALAND Retail only
strategy following a 2021 feedback period
- no decision as of September 2022.

RBI outlined the features and objectives

Domestic with
of the Digital Rupee and launched a
INDIA Wholesale & retail nine national
wholesale CBDC pilot program in
banks Q4 22
partnership with nine national banks.

Fully live, the Sand Dollar is the digital

version of the Bahamian dollar (B$) issued
BAHAMAS Retail only Sand Dollar by the Central Bank of The Bahamas
through authorized financial institutions
(AFIs).

In May 2022, the BOJ announced a phased

JAMAICA Retail only eCurrency Mint
roll-out of the JAM-DEX.

South Africa has made no formal CBDC

decision or official plan. However, the
SOUTH AFRICA Wholesale & retail Project Khokha
South African Reserve Bank is researching
and exploring potential benefits and risks.

27
 CBDC principles and trade-offs for central banks
New technologies must be assessed regularly for benefits versus risks and adopted after
carefully considering performance, scalability, data security, and privacy to ensure the
Value vs. risks
system’s safety, stability, and sustainability. E.g., DLT vs. non-DLT considerations, public vs.
private deployments.

Integrating newer forms of currencies into existing payment ecosystems should ensure
National policy vs. stability that all monetary policies set out by a central bank are adhered to so that financial
stability never comes into abject risk scenarios as the system adopts CBDCs.

Multiple operating models come under consideration when designing CBDC

infrastructure. The central bank must decide who owns the liability, how many
Operating model vs. liability
intermediaries they want to onboard, and how much control they want to cede to private-
sector partners.

Any CBDC introduction to a system must ensure that every citizen and corporation can
Accessibility vs. legitimacy access this digital currency. In the case of offline CBDCs, safeguards must handle disputes
related to double spending or transaction data reconciliation.

KYC considerations are a significant factor for regulators and central banks regarding end
Identity vs. privacy users of CBDCs. Regulators must agree upon a base level of customer identity for security
while not intruding on privacy.

While advanced features such as programmability and smart contracts can bring more
features to CBDCs, technology adoption should also consider the feasibility for end users
Upgrades vs. feasibility
to access CBDCs with minimal technical and non-technical barriers. E.g., the need for
special hardware, software.

New approaches should be compatible with current systems to ensure synergies. CBDCs
Coexistence vs. complexity can complement, rather than replace, existing payment rails. Cross-border CBDC
infrastructure will need to consider payment rails of multiple countries.

CBDC platforms must be interoperable (with existing and other CBDC systems) to ensure
they function across geographies, regulations, and jurisdictions. Therefore, central banks
Interoperability vs. standards
must consider standards and interoperability when adopting a platform for developing a
new system.

CBDCs promise near-instantaneous settlement times between parties. However, faster

transaction times are mostly optimistic because rapid cash movements, especially in bulk,
Transaction times vs. volatility
must be regulated to ensure that sudden changes in liquidity do not impact the markets
and the economy.

While developing fail safes for CBDC systems that a vast population will use, regulators
Fail safes vs. security will have to ensure robust governance and compliance checks for recovering lost funds or
damaged wallets without risking the identity of the affected parties.

New systems should be able to enact a robust governance model with clearly defined
Accountability vs. roles and responsibilities for each participant. Decentralization should not come at the
decentralization cost of a lack of accountability. Regulators must ensure sovereign control over the system
and allocate roles and responsibilities for all participants.

Widespread adoption of CBDCs in a country means that any systems developed need to
be scalable. Therefore, the infrastructure must be robust enough to grow in size to handle
Scalability vs. performance
increased volumes and various transactions while maintaining a high degree of
performance.

Design decisions should ensure that adopting new technology involves energy-efficient
Sustainability vs. efficiency consensus mechanisms and governance models to mitigate the drawbacks of
conventional systems while not conflicting with the sustainability agenda.

28 Building Central Bank Digital Currency

ENDNOTES
1
Investopedia, “DigiCash, Jake Frankenfield;” July 20, 2021.
2
Copenhagen Business School, “Designing New Money: The Policy Trilemma of Central Bank Digital Currency;” Ole Bjerg;
June 13, 2017.
3
BIS, “Central bank digital currencies: foundational principles and core features;” October 9, 2020.
4
International Monetary Fund, “Staff Concluding Statement of the 2022 Article IV Mission;” March 21, 2022.
5
BIS, “Inthanon-LionRock to mBridge: Building a multi CBDC platform for international payments;” September 28, 2021.
6
Federal Reserve Bank of New York, “New York Fed Announces Phase I Results of the New York Innovation Center’s Project Cedar;”
November 4, 2022.
7
Cointelegraph, “Hong Kong unveils completed retail CBDC project that has a CBDC-backed stablecoin;” October 21, 2022.
8
IBC, “Inter-blockchain communication protocol”.
9
The World Bank, “COVID-19 Boosted the Adoption of Digital Financial Services;” July 21, 2022.
10
US Federal Deposit Insurance Corporation, “2021 FDIC National Survey of Unbanked and Underbanked Households;” November 14,
2022.
11
Investopedia, Nostro Account, Julia Kagan; April 24, 2020.
12
Dow Jones, Risk and Compliance Glossary.
13
Investopedia, “Basel III: What It Is, Capital Requirements, and Implementation;” Andrew Bloomenthal, July 17, 2022.
14
J.P.Morgan, “Digital solutions enabling instant transfer and clearing of multi-bank, multi-currency assets on a permissioned distributed
ledger”.
15
CFI, “Delivery Versus Payment (DVP);” March 31, 2023.
16
Investopedia, “Nostro Account vs. Vostro Account: What’s the Difference?;” J.B. Maverick, May 03, 2022.
17
Global CBDC Challenge Report 2021pdf.

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29
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