Nations around the world are conducting research into the design of central bank digital currency (CBDC), a new, digital form of money that would be issued by central banks alongside cash and central bank reserves. Retail CBDC would be used by individuals and businesses as form of money suitable for routine commerce. An important motivating factor in the development of retail CBDC is the decline of the popularity of central bank money for retail purchases and the increasing use of digital money created by the private sector for such purposes. The debate about how retail CBDC would be designed and implemented has led to many proposals, which have sparked considerable debate about business models, regulatory frameworks, and the socio-technical role of money in general. Here, we present a critical analysis of the existing proposals. We examine their motivations and themes, as well as their underlying assumptions. We also offer a reflection of the opportunity that retail CBDC represents and suggest a way forward in furtherance of the public interest.
Citation
G Goodell, H Nakib, and T Aste. "Retail Central Bank Digital Currency: Motivations, Opportunities, and Mistakes." Working paper, March 2021.
Design approaches based on certified hardware have featured prominently in the recent debate concerning the deployment of large-scale digital currency systems in general and systems to support central bank digital currency (CBDC) in particular. Certified hardware is a cornerstone of the so-called "trusted computing" paradigm, wherein a user carries a device designed to operate in a manner that respects the will of a third party in preference to the will of the user. The justification for such approaches is usually given in terms of the perceived need to facilitate offline payments or to facilitate the recovery of lost assets. In this article, we critically assess the essential problems that digital currency solutions are being proposed to solve, particularly with respect to the future of payments and the future of cash. Next, we examine the characteristics of trusted computing within the context of its application to digital currency systems and its potential impact on the power relationships between the users of devices, the manufacturers of devices, and other powerful actors such as corporations and the state. Finally, we assess the validity of common justifications for certified hardware in the context of alternative designs, limitations, and trade-offs. We conclude that the interests of consumers would be better served by design approaches to digital currency that do not require the use of trusted hardware.
Citation
G Goodell. "Certified Hardware Requirements Undermine Digital Currency." Working paper, September 2022.
The People's Bank of China (PBOC) has launched an ambitious project to develop a digital currency for use in domestic, retail transactions, and is, by far, the most advanced globally in this regard. In addition to involving a diverse set of stakeholders, the PBOC established a set of fundamental principles, including privacy, inclusiveness, and conservatism, and has articulated its progress in a public document translated into English. We maintain that although both its first principles and its conclusions drawn from the research conducted by the PBOC from 2014 to date are broadly reasonable and appropriate, the PBOC has also missed some important considerations and entertained some questionable assumptions, which many central banks around the world have also done. In this analysis, we consider the strengths and weaknesses of the digital currency proposition articulated by the PBOC as it exists today, and we propose one fundamental and specific change for the PBOC and other central banks around the world: The architecture must accommodate privacy-preserving, non-custodial wallets. With this change and a related set of minor adjustments, China has an opportunity to lead the world in the implementation of a central bank digital currency (CBDC) solution that protects the authority of the central bank to implement monetary policy, preserves the role of public-sector and private-sector banking institutions, promotes the efficiency of retail transactions and businesses, satisfies regulatory objectives, and safeguards the human rights of retail consumers, including their privacy and their right to participate in the economy. We hope that the PBOC, and other central banks around the world, will have the resolve and strength of purpose to implement our proposed change and carry on with implementing a CBDC architecture that serves the interests of its users.
Citation
G Goodell and H Nakib. "The Development of Central Bank Digital Currency in China: An Analysis." LSE Systemic Risk Centre Opinion Piece, November 2021. https://www.systemicrisk.ac.uk/sites/default/files/2021-12/2108.05946.pdf
The current crisis, at the time of writing, has had a profound impact on the financial world, introducing the need for creative approaches to revitalising the economy at the micro level as well as the macro level. In this informal analysis and design proposal, we describe how infrastructure for digital assets can serve as a useful monetary and fiscal policy tool and an enabler of existing tools in the future, particularly during crises, while aligning the trajectory of financial technology innovation toward a brighter future. We propose an approach to digital currency that would allow people without banking relationships to transact electronically and privately, including both internet purchases and point-of-sale purchases that are required to be cashless. We also propose an approach to digital currency that would allow for more efficient and transparent clearing and settlement, implementation of monetary and fiscal policy, and management of systemic risk. The digital currency could be implemented as central bank digital currency (CBDC), or it could be issued by the government and collateralised by public funds or Treasury assets. Our proposed architecture allows both manifestations and would be operated by banks and other money services businesses, operating within a framework overseen by government regulators. We argue that now is the time for action to undertake development of such a system, not only because of the current crisis but also in anticipation of future crises resulting from geopolitical risks, the continued globalisation of the digital economy, and the changing value and risks that technology brings.
Citation
G Goodell, H Nakib, and P Tasca. "Digital Currency and Economic Crises: Helping States Respond." LSE Systemic Risk Centre Special Papers SP 20, September 2020. Presented at 6th Annual Peer-to-Peer Financial Systems Workshop (P2PFISY 2020).
Digital currency is a novel form of money that could be issued and regulated by central banks or other actors, offering benefits such as programmability, security, and privacy. However, the design of a digital currency system presents numerous technical and social challenges. This article presents the design and prototype of a non-custodial wallet, a device that enables users to store and spend digital currency in various contexts. To address the challenges of designing a digital currency system, we conducted a series of workshops with internal and external stakeholders, using methods such as storytelling, metaphors, and provotypes to communicate digital currency concepts, elicit user feedback and critique, and incorporate normative values into the technical design. We derived basic guidelines for designing digital currency systems that balance technical and social aspects, and reflect user needs and values. Our work contributes to the digital currency discourse by demonstrating a practical example of how digital currency could be used in everyday life and by highlighting the importance of a user-centred approach.
Citation
R Bowler, G Goodell, J Revans, G Bizama, and C Speed. "A non-custodial wallet for digital currency: design challenges and opportunities." Working paper, October 2023.
The announcement by Facebook that Libra will "deliver on the promise of 'the internet of money'" has drawn the attention of the financial world. Regulators, institutions, and users of financial products have all been prompted to react and, so far, no one managed to convince the association behind Libra to apply the brakes or to convince regulators to stop the project altogether. In this article, we propose that Libra might be best seen not as a financial newcomer, but as a critical enabler for Facebook to acquire a new source of personal data. By working with financial regulators seeking to address concerns with money laundering and terrorism, Facebook can position itself for privileged access to high-assurance digital identity information. For this reason, Libra merits the attention of not only financial regulators, but also the state actors that are concerned with reputational risks, the rule of law, public safety, and national defence.
Citation
V Khan and G Goodell. "Libra: Is it Really About the Money?" August 2019. In Technology, Society, and Ethics, Jeremy Pitt, Ed., July 2021.
In this article, we consider the roles of tokens and distributed ledgers in digital payment systems. We present a brief taxonomy of digital payment systems that use tokens, and we address the different models for how distributed ledger technology can support digital payment systems in general. We offer guidance on the salient features of digital payment systems, which we comprehend in terms of consumer privacy, token issuance, and accountability for system operators.
Citation
G Goodell. "Tokens and Distributed Ledgers in Digital Payment Systems." Discussion paper, July 2022.
This document constitutes a response to a Consultation Paper published by the Bank of England and HM Treasury, "The digital pound: a new form of money for households and businesses?", the latest document in a series that includes "Central Bank Digital Currency: opportunities, challenges and design" in 2020 and "New forms of digital money" in 2021. The Consultation Paper concerns the adoption of central bank digital currency (CBDC) for retail use in the United Kingdom by the Bank of England. We shall address the consultation questions directly in the third section of this document.
Citation
G Goodell. "Response to 'The digital pound: a new form of money for households and businesses.'" Consultation response, May 2023.