Source: Blockchain Knight

The Bank for International Settlements (BIS) has unveiled a comprehensive framework for designing retail central bank digital currencies (CBDCs), emphasizing a hybrid model that combines central bank control with private sector cooperation.

The report, developed by the Advisory Group on Innovation and Digital Economy (CGIDE), provides a roadmap for central banks in the Americas and around the world to explore this evolving financial tool.

The hybrid model proposed in the report enables central banks to retain management of CBDC issuance and infrastructure while delegating user-facing responsibilities to private intermediaries.

These intermediaries will handle functions such as KYC verification, wallet management and transaction facilitation.

This model ensures efficiency and scalability while solving issues related to user privacy and compliance.

The architecture includes four core processes: user registration, CBDC issuance (cash in), CBDC withdrawal (cash out) and in-book transfer.

Notably, the system supports a layered KYC mechanism, providing basic wallets for low-value transactions with minimal identity requirements and advanced wallets for high-value transactions that meet stricter regulatory standards.

Offline payment capabilities are a key feature of the proposal, which aims to expand access to underserved and unbanked populations.

“Hybrid models bridge the gap between centralization and decentralization, providing resiliency, accessibility and stronger privacy protections,” the report said.

Bank for International Settlements The report highlights the advanced capabilities that CBDC can bring to the financial ecosystem, including programmability through smart contracts, asset tokenization, and seamless integration with DeFi.

These capabilities can increase liquidity, automate transactions and create new financial arrangements, positioning CBDCs as fundamental tools for the modern economy, the report said.

For example, a tokenized CBDC could simplify financial settlement through atomic transactions, eliminating the need for multi-step reconciliation processes. They can also facilitate cross-border payments, reducing costs and processing times while promoting greater competition and efficiency.

The report emphasizes that a programmable CBDC platform can transform supply chain financing and support innovations such as emergency payments.

The report draws on global experience, mentioning Jamaica’s JAM-DEX, China’s digital yuan, and Peru’s offline pilot projects targeting rural areas.

It also addresses technical challenges, including interoperability with existing payment systems, ensuring privacy without compromising compliance, and protecting against cyber threats.

The BIS stressed that the proposal is a flexible framework designed to facilitate dialogue and feedback among stakeholders.