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The Covid 19 global pandemic has fundamentally reshaped the patterns of consumer purchase behaviour and retail payments infrastructure as we previously knew them. This core shift has also accelerated other payment trends that were underway before the pandemic started, such as contactless payments (Shin, 2020) and the decline of cash usage (Kiff, et al., 2020). While such trends towards digitisation no doubt already exist-ed in part, the possible spread of a deadly virus via cash usage, as well as the increased proportion of remote payments, accelerated the diffusion of mobile and digital payment methods substantially. This preference became prevalent to such a degree that the use of cash was actively discouraged by retailers to avoid contact with customers as much as possible, as well as to reduce the amount of purchasing that was conducted in-person. Furthermore, demographic changes in the world population have seen young adults such as millennials and Generation Z showing a strong preference for mobile payments and digital transactions (Kiff, et al., 2020, p. 13) over other types of payments. As such, this cohort are the driving force behind the decline of cash usage. The whole idea of physical cash as a representation of value, as well as the very nature of money, can ap-pear quite esoteric to the layman and is therefore often misunderstood by consumers, thus we need to define and distinguish between the different forms of monies under discussion in the research literature. Cash is fiat money provided by the central bank and is considered a type of risk-free money, this kind of money is usually a physical object and takes a predefined form such as a coin or bill, thus it is inseparable from the object (Berentsen & Schär, 2018, p. 97). This type of money is the safest form of money that the population has wide access to. We must therefore first ask ourselves what changes are incumbent on these sudden changes in the nature of cash that consumers are required to use, when the increase in digital payments actively discourages the use of this risk-free money, instead making them more and more reliant on riskier digital forms of private money? This private digital money can usually be found in the form of commercial bank depos-its, and as account based virtual money, it is not risk-free (Berentsen & Schär, 2018, p. 98). Commercial banks compete for consumer retail deposits, and every time we make purchases using our contactless cards virtual money is being transacted through these individual deposit accounts on a centralised system at the requisite bank. The pandemic has made us even more reliant on contactless payments intermediated through this type of retail account deposit system, and henceforth on commercial banks. As we have seen from past financial crises such commercial banks are not always reliable when it comes to risk exposure, and this could in turn be detrimental to deposit safety in situations of systemic risk. After such huge crises in which big commercial banks have shown us that they are heavily risk exposed, is it not really systemically prudent to be so heavily reliant on privately issued virtual money from financial and bank actors who have in the past shown themselves to have totally insufficient market risk management. What is needed to provide consumer protection against potential market downturns or tightening credit conditions, is the provision of central bank protections and guarantees against any po-tential systemic risks that increased reliance on digital payments may be creating. 1.1. Relevance of Topic The BIS (2020, pp. 5- 9) cites these motivations of central banks for their research into CBDCs: continued access to central bank money, resilience, increased payments diversi-ty, encouraging financial inclusion, improving cross-border payments, supporting public privacy, facilitating fiscal transfers, and monetary policy motivations. The list of motiva-tions for this research with regards to the relevance of CBDCs is quite broad as a digital central bank currency has the potential to disrupt much of the financial system as we know it. As such, it is first necessary to address the individual component areas of re-search that are being covered. The first motivation of continued access to central bank money continues with the ar-gument that we are increasingly progressing towards living in a “cashless society” and have entire so-called “cashless cities” (Qian, 2019, p. 3). However, Qian (2019, p. 3) and the IMF (Kiff, et al., 2020) find that while cash usage is declining, cash itself will never fully disappear. Nonetheless, in such a “cashless” society where consumers and bank customers are heavily dependent on commercial bank money, we have to additionally worry about the moral hazard and harmful behaviour of commercial banks as previously observed in financial distress situations (Qian, 2019, p. 3). This being the case, it is in the best interest of the population that the central bank continue to provide some degree of basic access to central bank money, with a sufficient level of risk-free guarantee. Even in Switzerland, we can observe a decline in cash payments. Figure 2: Payment Method Acceptance Swiss Companies The reliance on online networks and commercial banks may be counterproductive to the resilience of the financial system, thus it is one of the main goals of the central bank to provide payment systems that can still function, even when offline (BIS, 2020, p. 5). It is also potentially quite important that such offline transfers can still be performed without the involvement of third parties, to avoid any problems around custodial delegation or the conflicts of interest that may arise from intermediaries. Thus, many central banks are also researching CBDCs that can function even when offline, and looking into continued functionality in case of a potential failure of online networks. These eventualities are being prepared in the case of network failures that may occur due to physical operating system failures such as in the case of a natural disaster. This functionality is especially important for regions that are harder to reach and may take longer to connect to the rest of the network in case of such a force majeure. Most existing retail and card payment services are reliant on methods that only function when they are fully online, and as such are totally dependent on continuous and stable network connectivity. Conventional methods of connectivity using networks that rely upon centralised systems which cannot funtion offline are not a generalisable payments architecture. Centralised digital payment systems of this type do not provide the financial system with as much resilience as cash does. This being the case, it is in the best interest of the central banks to provide digital money that can provide a similar level of resilience as cash, while also providing end users with the same efficiency and practicality as commercially available virtual money. Increasing payment diversity is in the best interest of the consumer as it means a system that is less reliant solely on commercial banks, which should provide both the opportunity for the hedging of systemic risk as well as an increase in customer choice. Especially as point of sale transactions trend increasingly towards becoming entirely cashless, consumers should be able to choose between different payment providers and adequately assess risk alternatives. Especially in emerging markets, where many households still have no access to bank deposit accounts and thus to any virtual commercial bank money, it is very important that such households get financially included into the new digital finance regime. In lower income economies, mobile payment systems such as the M-Pesa mobile payments network have been met with great success as they have a much lower threshold for setup and disclosure than conventional bank accounts. In a similar vein, CBDC accounts could potentially also offer lower thresholds to onboarding and as such encourage more financial inclusion, especially in markets where the proportion of bank account holders is lower. The improvement of cross-border payments could potentially be a motivation or a risk factor of CBDCs, however as there have not been yet a big enough rollout of a retail CBDC yet, it remains to be seen how this will develop in the future. Another important aspect of cash is that it is anonymous and therefore it supports public privacy, however with commercial bank deposits, the commercial bank sees at all times centrally who spent at what time what amount of money and thus such privacy is not guaranteed. For us as the public it may be in our interest to be able to have the choice to a payment alternative that has more privacy to it. Another important aspect that the Covid 19 pandemic has brought with it are massive fiscal transfers and the importance of such transfers. Of course, if a cental bank had a retail CBDC and the population had accounts directly with the central bank fiscal transfers could be made much more efficiently and instantly. Another very important motivation for researching CBDCs may be the potential of interest bearing CBDCs, as such an instrument may enable the central bank to overcome the zero interest rate lower bound. The BIS (2020, p. 8) argues that this argument may not be a primary motivation, however, it is a very crucial and important factor when considering the movations of central banks. CBDCs may well shake up our whole financial system as well as how point of sale interface systems function for customers. Thanks to this broad reach, the topic’s scope of applicability reaches not only into the field of finance but is also important for politics, infrastructure and law. This stature has definitely been accelerated by the rising popularity of cryptocurrencies and stablecoins, as well as the Covid 19 pandemic, but many of the observed trends were already prevalent well before this 1.2. Methodology and Structure This paper will synthesise the knowledge and insights gained from existing academic literature about CBDCs in addition to expert interviews conducted within Swiss banking, cryptography and academia, in order to be able to fully grasp the holistic effect that the possible rollout of a retail CBDC could have on the commercial banking sector. Expert interviews were conducted with professionals at Swiss financial institutions, in order to be able to analyse and give a broader insight into the effect of an introduction of CBDC payments into the Swiss market. A systems engineering and cryptography expert was consulted in order to gain insight from the technical point of view, and two academic researchers were consulted to gain more insight from the contemporary research fron-tier. This paper will first give a short review on the existing literature to give an overall short introduction into the topic, before diving further into the technical specifications of spe-cific regimes. Then, in the fourth section the paper will present some further case stud-ies by country, specifically, the FED, ECB, SNB and Sweden. The fifth section focuses on the empirical and qualitative insights gained from the expert interviews. The sixth sec-tion will focus on practical implications on banks and finally the seventh section will synthesise the overall results of the paper. Lastly, the conclusion will give a normative insight into the tradeoffs inherent in CBDC adoption and propose future research trends and topics for further investigation that are likely to gain in importance in the near to medium term. 2. Literature Review 2.1. CBDC Definition To be able to fully understand how these central bank digital currencies (from here on referred to as CBDCs) will affect the banking industry, firstly, we need to understand what exactly a CBDC is. Even though the debate around the adoption of CBDCs has only recently been pushed into the limelight, the idea of digital central bank money is not new (Auer, et al., 2022, p. 4). Tobin’s idea of a “deposited currency” (Tobin, 1987) al-ready proposed a safe currency that could have the convenience of deposits. The earliest proposal of digital cash was by Chaum (1983), however the idea was not able to catch on and instead private digital money became the norm (Chaum, Grothoff, & Moser, 2021). The IMF defines CBDC as a legal tender (Kiff, et al., 2020), functioning the same way as fiat money does today but with the additional feature of being a “new type of electronic liability of the central bank” (Chuen Lee, Yan, & Wang, 2021, p. 53). Defining a CBDC as legal tender primarily ensures the acceptance of this form of digital currency for wide retail usage. This adoption as a means of payment clearly distinguishes CBDCs from oth-er forms of digital currency such as Bitcoin and similar anywcryptocurrencies, which do not yet have an everyday use case. inteil (2020) defines CBDC as an electronic central bank currency that is also managed by electronic means. Some authors furthermore in-troduce the idea of interest bearing CBDCs (Kumhof & Noone, 2018), however, the ar-gument about whether CBDCs should or should not be interest bearing is yet to be con-cretely discussed beyond a few hypotheticals, and so should rather be seen solely as one possible functionality of a CBDC rather than as a defining feature. At this point in time, there is no widely accepted definition of CBDC (Kiff, et al., 2020, p. 9) while most pro-posals are still in a technical prototyping stage, and mass adoption of CBDCs has not been rolled out yet. In short, we will define CBDC as being a digital extension of existing central bank money, following the definition of the BIS (Auer, et al., 2022). 2.2. CBDC Types Table 1: CBDC Types CBDC Type Description Advantage Disadvantage Direct CBDC Directly operated by central bank. Direct claim on cen-tral bank, safety of payments, less com-plex to implement. Convolutes balance sheet of central bank, financial disinterme-diation, maintaining central ledger costly. Hybrid CBDC Financial intermedi-aries handle retail payments, while still having direct claim on central bank and central bank keeps central ledger. Central bank does not have to deal with microtransactions, less financial disin-termediation, direct claim on central bank. Central ledger costly to maintain, more complex structure to set up. Intermediated CBDC Financial intermedi-aries handle retail payments, while still having direct claim on central bank and central bank keeps wholesale ledger. Central bank does not have to deal with microtransactions, less financial disin-termediation, direct claim on central bank, only wholesale ledger upkeep need-ed, more anonymity. More dependent on financial intermedi-aries, more complex structure to set up. Indirect/Synthetic CBDC Financial intermedi-aries execute pay-ments, direct claim on intermediaries, who fully back liabili-ties at central bank. No financial interme-diation, full backing at central bank, easy set up as infrastruc-ture already there. Not a real CBDC, no direct claim on cen-tral bank, no ano-nymity of payments. Auer et al. (2020, p. 18) introduce four distinct types of CBDC architectures that this paper as well as the overall research on CBDC accepts. They are: 1. Direct CBDC 2. Hybrid CBDC 3. Intermediated CBDC 4. Indirect/Synthetic CBDC. Direct CBDC would be of a type that is directly operated by the central bank and would subsequently not need any intermediaries. Due to its directness, this option may seem at first glance like a simple choice for the central bank to implement; however, the central bank would also have to offer retail services and maintain all the ledgers themselves. Furthermore, there is the possibility of the greatest financial disintermediation with this option. On the other hand, the safety of payments is guaranteed as people have a direct claim on the central bank which would be the closest option to cash in terms of the low default and credit risk. With the hybrid CBDC, Auer et al. (2020, p.18) introduce an option that would run on two separated payment rails. Retail payments would be handled by financial intermedi-aries, while still maintaining a direct claim on the central bank. Furthermore, the central bank would still be keeping a central ledger that records all transactions. This means that the central bank would need a substantial amount of new infrastructure that is in substance similar to the necessary prerequisites for implementing a direct retail CBDC. An advantage to the hybrid model is that the central bank would be able to forego the tedious task of having to intermediate directly with retail customer accounts. This would save them from having to deal with the vast numbers of microtransactions that come with retail transaction services, and leave these to financial intermediaries that already have the necessary structure capabilities established in this area. The intermediated CBDC is similar to the hybrid model, with the main difference being that in the intermediated model the central bank only needs to maintain a wholesale ledger (Auer et al., 2020, p. 18). This model ensures the anonymity of payments as is the case with cash, and would therefore be less costly for the central bank in terms of infra-structure. However, consumers would by contrast be more dependent on financial in-termediaries, as the intermediaries are given substantially more responsibilities in this model with respect to the provision of wholesale ledgers to the central bank. The indirect or synthetic CBDC is a payment system directly operated by intermediaries that resembles a narrow payment bank (Auer et al., 2020, p.18). As the name indicates this alternative is not really a CBDC at all, since consumers only have a direct claim on intermediaries and not on the central bank. The intermediaries are required to back their liabilities fully with the central bank. However, since the retail customer does not have any direct claim towards the central bank in the case of default, this type of CBDC would not be definitionally risk-free and as such defeats the primary systemic risk miti-gation purpose of a retail CBDC. 2.3. Covid 19 and Digitisation of Payments, Decline of Cash Use The Covid 19 pandemic has not just brought life as we know it to a halt, it has also given rise to new forms of work, such as more flexible work hours and possibilities for work-ing from home. Most interestingly in the scope of this paper, the pandemic has brought upon us a massive increase in online shopping, e-commerce and a concomitant decline in cash usage. Even though such trends were already inherently present in our digitised world, the Covid 19 pandemic has accelerated them substantially (Auer, et al., 2022, p. 7). These trends have demonstrated the clear need for a safer digital currency than is already available, thus central banks have started looking into retail CBDCs increasingly since the start of the pandemic. The IMF (2019, p. 23) found that demographic changes in the world population con-tributed to the decline of cash usage as young adults and millennials tend to use more cash substitutes and digital forms of money rather than actual cash. Furthermore, the IMF (2019) also found through their survey that certain countries or regions especially tended towards mobile payments so much that they actively discourage cash payments. These countries are primarily in Asia with a special emphasis on China, a country at the very forefront when it comes to both the research and implementation of a retail CBDC with their planned rollout of the e-Yuan. The E-Yuan and its trial rollout will be a topic in a later portion of this paper. Asian countries such as China or Korea have a high pene-tration of mobile phone usage and are also at the forefront of mobile payments, thus it is to be expected that their central banks would think to incorporate CBDCs as a natural next step in these countries where central bank issued cash payments are barely used at all anymore. Chuen Lee et. al. (2021, p. 52) argue that countries with a higher development level, more heavily digital economies, and well-disciplined populations felt lesser impacts and recovered faster from the fiscal setbacks of Covid 19 infections and lockdowns. This argument may also offer support for why the Chinese economy is at the very frontline of CBDC research and rollout. China has not only been a first mover when reacting to the Covid 19 pandemic but has also always been a trend leader when it comes to online shopping and mobile payment systems. In these circumstances, it comes as little sur-prise that China should be one of the leading countries to have a mass rollout of CBDCs. Other good examples of highly digitised economies with disciplined populations that have recovered well from the pandemic are South Korea, Japan and Switzerland. These countries are all highly developed economies with populations that are quite well-disciplined as per the definitional parameters set out by Chuen Lee et al. (2019, p. 52), and thus they were able to recuperate well from the pandemic’s temporary reductions in consumption behaviour. These governments were therefore able to react quickly and effectively. In contrast to China, none of these countries are run by totalitarian govern-ments and as such have a lesser scope of measures available to them for controlling their populations. However, the governments in each of these example countries enjoy a high enough degree of trust from the population at large such that controlling and steer-ing behaviour is still possible. A very important argument that Chuen Lee et al. (2019, p. 53) also mention is that cen-tral banks should focus on the drastic changes in consumer behaviour that have natural-ly been brought about by changing patterns of consumption. Contemporary consumers prioritise convenience and efficiency when it comes to their consumption habits, thus their preferred method of payment needs to be able to fulfill these changing demands. Modern payment systems need to be able to adapt and change quickly along with con-sumer and retailer needs. Efficiency and fast payments are crucial for increasingly just-in-time supply chain logistics and highly digitised point of purchase interfaces with a level of efficiency that affords them relatively little slack. Central banks have taken a step back when it comes to digital payments and let private banks handle most of these ser-vices, so that all digital retail payments are at present handled by retail banks. The cycli-cality of credit during recurrent financial crises has clearly demonstrated how vulnera-ble the whole retail banking system is to a downturn and consequently how important fiat money becomes in such situations. This growing systemic interconnectedness pro-vides ample justification for the introduction of central bank digital currencies that are tailored to an ever more digitised society. The BIS argues that, in areas where cash is in decline, there is a danger that households and businesses will no longer have access to risk-free central bank money (BIS, 2020, p. 5). This argument has clearly been demonstrated by previous financial crises and bank runs. The BIS (2020, p. 5) further argues that a CBDC could potentially help to build more confidence in fiat currency and thus make the economy more resilient. It is true that, with declining use of centrally issued (central bank) money and an increase in the use of mobile and other digital payments (retail bank money), consumers tend to rely more heavily on retail bank money (non risk-free money) than they did in the past. With lower direct digital access to risk-free central bank money, retail consumers are there-fore unwittingly exposing themselves to excessive additional credit risk that they are likely only partially aware of. This being the case and in the absence of increased ringfencing for digital payment service providers, it is in the best interest of every cen-tral bank to ensure that the population has some direct access to risk-free money, and that the economy can function efficiently without exposing households to unnecessary risks. This must be conducted while at the same time also allowing payment system providers to keep innovating. An interesting trend that the Covid 19 pandemic has given rise to is the precautionary holding of cash (Shin, 2020). Hyun Song Shin (2020) of the BIS sees this trend as con-sistent with past episodes of economic uncertainty. This furthermore underlines the argument and need for central banks to research and provide the wider population a risk-free alternative to riskier forms of money, especially in times of overall market un-certainty. Figure 3: Contactless Payment Trend During the pandemic, cash use was actively discouraged as physical contact was consid-ered a vector that could help the spread of the virus and thus contactless payments were accelerated. However, these trends have sparked debate around the inclusion of households that may not have access at all to retail bank accounts (Shin, 2020). It is the central bank’s duty to ensure that such households are financially included as well. An-other issue that Shin (2020) has identified is the cost and fee structure of digital pay-ment services, since these services can create a substantial cost drag on GDP. Needlessly extractive intermediary cost centres should be considered and mitigated where possi-ble. There is a role for private industry in helping to address the need to reduce costs, and to come up with some potentially novel possibilities to innovate and make payment systems more cost effective so as to minimise this cumulative inhibitory effect. 2.4. Interoperability and User Friendliness As well as catering to consumers’ direct retail needs in the form of a retail CBDC and protecting the systemic exposure of the wider banking system in the form of wholesale CBDCs, both forms of CBDC still need a sufficient degree of interoperability to ensure their effectiveness and widespread and rapid user adoption. When speaking about ei-ther a direct retail CBDC or the more complex two-tier circulating system, it is necessary for any form of CBDC to display the interoperability required for these different modali-ties to function together as a holistic system. In its direct application, CBDC interoperability can be seen to “encompass characteristics sufficient to achieve an easy flow of funds to and from other payment systems” (BIS, 2021, p. 9). This entails the “capability to communicate, execute programs, or transfer data among various functional units in a manner that requires the user to have little or no knowledge of the unique characteristics of those units” (BIS, 2021, p. 9). With respect to the need for access and effective functionality from a broad range of heterogenous actors, interoperability therefore exists in a relatively binary way. Namely, that a CBDC displays sufficient levels of communication, runtime execution and data transfer that serve to facilitate the easy flow of funds between payment systems which together allow it to qualify as fully interoperable. Whereas if any of these features are lacking or even partially restricted, the easy flow of funds will be impaired and the CBDC will therefore not display interoperability. Defining the threshold value for interoperability to be included as a feature is less clear, but the degree that existing back office payment clearing systems such as SWIFT are able to freely converse can serve as a benchmark here. Similarly, on the retail end the level of effective interoperability of retail cryptocurrencies both in their payment and execution/data transfer functions can serve as a useful benchmark for digital pay-ments. With more advanced payment solutions that are able to contain additional ex-pository information in their transaction ledgers by accommodating higher transaction memory requirements through a larger block size, fully decentralised ledgers are able to maintain several robust inferences about the global memory state from any given trans-action. In these instances, the advent of decentralised finance has enabled the definition of in-teroperability to extend beyond the mutually coherent transaction history of a clearing system like SWIFT, to combine it with a distributed system of memory management for information that would likely not be contained within a traditional balance sheet. While such broader tools for the state management of computations on a CBDC would be necessary for the smooth operation and full features of a private cryptocurrency’s functionality, there would be several privacy concerns that make this level of interoper-ability problematic and difficult to propose to the general public. Technically, the higher throughput of a proof-of-authority verification could help to solve this problem relative-ly easily, and such an increase in transaction speed would help to alleviate many of the memory limitations of blockchain transactions. By their holistic and integrative nature, the effectiveness of a retail CBDC at achieving user adoption will also therefore be dependent on a correctly implemented degree of interoperability. The necessity of this feature as a prerequisite for adoption will be espe-cially acute in the case of a direct retail CBDC, but will no doubt also help to spur the SWIFT onboarding and institutional adoption of a wholesale CBDC for facilitating high sensitivity and semi-automated processes such as interbank payments and overnight clearing. From this basic requirement, it should be possible for CBDC proponents to deduce that interoperability is needed to display a degree of future proofing for skeptical early adopters of a retail CBDC, as well as provide reassurances for hypothetical potential use cases as the technology continues to develop. With the prerequisite of moderate in-teroperability in mind, we can now go on to consider the tangible user needs with re-gards to features and functionality that will further drive adoption in a sustainable way. Augustin Carstens (2021) has previously noted in a BIS speech on interoperability that a high degree of communication will be required from central bankers looking to drive adoption and encourage the widespread use of CBDCs. On top of the provision of a high degree of interoperability and desirable user-friendly features, an example for desirable features that have seen a degree of public demand from their proponents would be the need for privacy that has been requested by cryptocurrency and privacy advocates. In-deed, such concerns have been addressed in the BIS report on the quest for minimally invasive tech (Auer & Böhme, 2021). While the justifications for a retail CBDC by public and governmental institutions in this instance with respect to privacy are not entirely convincing, it remains important that such concerns are noted and acknowledged in any effective communication strategy. This is especially true for the widespread adoption of direct retail CBDCs that will be looking to gain acceptance among a very wide group of heterogenous actors in the general public. 3. Technical Specs of Different Regimes 3.1. Facebook Libra/Diem and Big Tech Payment Architecture Facebook’s proposal Libra, now renamed as Diem, in June 2019 rose from the ashes of the cryptobubble of 2018 and is a stablecoin with serious potential to emerge as a mon-etary alternative with scale (Arner, Auer, & Frost, 2020, pp. 5-6). Facebook with its mas-sive network of users would of course enjoy largescale network effects and would be able to successfully launch their stablecoin with a transational and global scale that is outside of the scope of any central bank. Stablecoins such as Facebook’s Libra aimed to address the shortcomings as a store of value that cryptocurrencies such as Bitcoin, which has shown itself to be extremely vola-tile in value (Arner, Auer, & Frost, 2020, p. 6), cannot. Stablecoins are the bridge be-tween fiat currencies and DLT that aim to fill in the gaps that cryptocurrencies have left blank (Arner, Auer, & Frost, 2020, p. 6). To preserve a stable value such stablecoins are backed with currencies, assets or other cryptocurrencies (so-called asset-linked stable-coins). Alternatively they use algorithms to increase or decrease the supply of the sta-blecoin in response to a given change in demand (algorithm-based stablecoins) (Arner, Auer, & Frost, 2020, p. 6). This may sound ideal in theory, however it is yet to be seen if these stablecoins are actually able to hold a stable value under adverse market condi-tions. And how much backing these stablecoins can ever actually definitionally have; such issues around valuation and financial contagion will be further discussed in a latter portion of this paper. Facebook’s initial proposal of Libra triggered the immediate reaction of central banks and regulatory authorities as it would have posed a potential threat to monetary sover-eignty and financial jurisdiction (Fantacci & Gobbi, 2020, p. 3). However, the project has since been postponed and redesigned as a more traditional payment network (Fantacci & Gobbi, 2020, p. 3). Regardless, stablecoins and similar initiatives such as Libra are likely to continue to appear as there appears to be a general consumer demand and es-tablished use case for the functionalities that they offer. This trend is not stoppable and central banks should not underestimate the potential threat posed to their monetary sovereignty by supranational technology corporations issuing their own private curren-cy. In this instance, Facebook’s Libra has really been something of a wake-up call to many central banks and since Libra’s announcement, central banks’ research globally around CBDCs has been much more scrutinised both in its speed and intensity. While Libra was a permissioned, blockchain-based system built around a stablecoin that was to be backed by a basket of assets, the Diem will be backed only by the USD (Solberg Söilen & Benhayoun, 2021, p. 5). This move was most probably done in order to appease the greater regulatory and supervisional scrutiny of the FED, with the hope that the FED will see Facebook’s currency as less of a threat to their own monetary sovereignty and feel less pressure to compete (Solberg Söilen & Benhayoun, 2021, p. 5). While It may be the case that the FED has successfully fended off Facebook for now, it is only a matter of time until other big tech giants come up with their own currency that may also significantly weaken the FED’s stature of monetary preeminence and global monetary backstop. Thus, it is probably in the best interest of the FED to research and look into testing their own CBDC as soon as possible, in order to develop a more detailed cognisance of the nature of the systemic disruption posed by tech giants that enjoy massive network effects and have the needed technical know-how to launch their own virtual currency in a protracted internal timeframe that would most likely be signicantly quicker than that of a central bank. Though stablecoins may appear to encroach on the monetary sovereignty of central banks, it is still important to note that they are in the end only privately issued cryptocurrencies and as such may be unable to provide value stability and may also involve other risks (Náñez Alonso, Echarte Fernández, Sanz Bas, & Kaczmarek, 2020, p. 3). By contrast, CBDCs would be full legal tender and risk-free just as cash is, and thus would not be perfectly replaceable or even directly comparable to stablecoins in legal stature. However, it still remains to be seen how these stablecoins perform in the future, as the market is still in its infancy and not enough research and data is available at this point in time. In any case, the launch of Diem should be an exciting project to keep an eye out for. With the potential ambitions to develop it into a fully integrated centralised cryptocurrency exchange, proprietary smart contract custody and escrow system, and potentially even into a financialised VR/metaverse experience with follow user metrics tracking, the reach of the Diem project’s scope is certainly a fully conceptualised and vastly different alternative to CBDC. 3.2. Chinese Retail CBDC China has been at the very forefront when it comes to both the research and rollout im-plementation of CBDCs. According to Chorzempa (2021, p. 104) China has had a dedi-cated research team to focus on digital currencies since 2014 and from 2016 on China has had the “strategic goal” of launching a CBDC. In tandem with these developments, more recently the Chinese government has also been asserting significantly more regu-latory control over other digital currencies (Chorzempa, 2021, p. 104). This is likely due to the government’s own aims of launching their digital currency and not wanting to see a serious challenge to the central bank’s monetary sovereignty by private competitors. Such a sense of loss of control is not only felt by the Chinese central bank but is generally shared by many central banks thanks to the increasing adoption of cryptocurrencies and the evermore cashless society that we live in. This is a paradigm in which the central bank has less and less control over the money supply and thus is also slowly losing a grasp on the effectiveness of its monetary policies. However, it remains to be seen if CBDCs are going to be used primarily as a monetary policy tool to combat cryptocurrencies that are encroaching upon the central bank’s territory, or whether this is just a secondary motivation. The e-CNY will operate on a two-tier level (Li & Huang, 2021, p. 70), meaning that the population would not operate with deposit accounts directly at the central bank but rather at commercial banks. Rather, the central bank would just issue these e-CNY to the commercial banks. In this two-tier model, the risk of bank disintermediation is somewhat minimised as the commercial banks clearly have a role to play in such a CBDC system. Importantly, the Chinese government strives to fully replace M0 (cash) with a new e-CNY in the future (Li & Huang, 2021, p. 71). However, it is not specified anywhere what exact timeframe the PBOC is currently following in order to replace their M0 fully with the new digital currency. For this avenue, it will be noteworthy how testing during the 2022 winter Olympics of the e-CNY has influenced the mass-rollout of CBDC (Randhawa, 2020, p. 7). Even though it may not be a race who launches their retail CBDC first successfully, but all eyes will be on whoever may succeed in this endeavour as they may lead into this new era of finance. China may well be the ideal candidate for a mass rollout of a retail CBDC, as the country already has a highly developed mobile payment market with companies such as AliPay and WeChatPay dominating the market while cash usage is in decline, so it makes perfect sense to replace cash with a virtual Yuan as well. The Chinese market has shown its ability to quickly adapt in the past and may continue to prove to do so with CBDCs. Of course, the biggest concern with this e-CNY is the financial disintermediation of commercial banks as well as AliPay and WeChatPay and that is exactly why the Chinese government has opted for the two-tier model in order to minimise such disintermediation effects as much as possible by giving commercial banks the possibility to be involved in the process and be able to develop their own wallets and apps for the population (Li & Huang, 2021, p. 73). In its core design, the e-CNY would function quite similarly to mobile payments, however, the CBDC would be legally compensable, achieve true zero cost, would not have to rely on network effects and could be anonymous (at least to a certain degree) (Li & Huang, 2021, p. 72). Even though there may be arguments that there are enough differences between the e-CNY and mobile payments that they may coexist, some replacement effect seems unavoidable. The e-CNY is programmable and can be consequently completely monitored (Randhawa, 2020, p. 5), which is a great feat technologically and may well provide marginal improvements in live feed data analytics or sentiment analysis. However, this would only be the case if such a rich dataset is not used for malicious purposes such as political control of the population. Due to these legitimate concerns around political intrusion upon civil liberties, it remains to be seen whether other central banks will want to follow in the PBOC’s footsteps when designing their own CBDC models. 3.3. Private Stablecoins Stablecoins, are a financial instrument as previously mentioned in section 3.1. that has the goal to minimise volatility and maintain a stable value relative to a specified asset or a pool or basket of assets (BIS, 2021, p. 20). Stablecoins were mainly created to over-come the shortcomings of first-generation cryptocurrencies such as Bitcoin that suffer from extreme volatility and thus are more of a speculative financial asset (Amato & Fan-tacci, 2020). While they are designed to serve the same store of value function as fiat currencies, sometimes referred to as an asset reference token, they are a necessary pre-requisite for interacting with many public blockchain protocols. As such, the primary teleological design of stablecoins can be seen as initially offering interoperability to the fiat currencies or other assets upon which they are based. Following Fantacci & Gobbi (2020, pp. 5-7) privately issued stablecoins are classified as follows: Table 2: Stablecoin Categories Fiat Tokens Fully backed by funds consisting of offi-cial fiat currency. Off-chain Collateralised Stablecoins Backed by a portfolio of assets other than cash, regular financial assets used. On-chain Collateralised Stablecoins Backed by other cryptoassets. Algorithmic Stablecoins Not rely on presence of collateral, instead adjusts automatically supply of tokens in response to demand. Even though privately issued stablecoins aim to maintain a stable value, it is not fore-seeable that they will be able to replace official currencies (Fantacci & Gobbi, 2020, p. 7). Thus, these stablecoins are not entirely in direct competition with CBDCs, which would be an analogous replacement to fiat cash. Not only are stablecoins a market that is to date systemically insignificantly small, it also still remains to be seen whether they are actually able to fully maintain their stable values even in times of extreme financial dis-tress. Furthermore, depending on the nature of the assets backing the stablecoins such as with “on-chain collateral”, meaning other cryptocurrencies, they may not only be un-able to maintain a stable value but may introduce completely new idiosyncratic risks (Náñez Alonso et al., 2020, p. 3). Even though stablecoins may not be able to replace fiat currency, Segal-Knowles (2021) argues that stablecoins could potentially serve as a substitute for commercial bank deposits. As with the decline of cash usage and increase in commercial bank card usage (i.e. commercial virtual money usage), it is definitely conceivable that, if stablecoins prove themselves to be actually less volatile than their free floating cryptocurrency counterparts, could serve in the future as a reliable replacement for commercial bank deposits as it really does not make a substantial experiental difference for retail customers. As long as the service offering remains comparably broad, stablecoins could actually even be used to discipline commercial banks and their moral hazard problems around risk shift, which has led to such a public loss of confidence in these institutions. Once a credible price stability offering can be adequately established, these mechanisms would offer a form of end user custody that mirrors public money like physical cash a lot more closely than it does a conventional bank account system. However, the success of stablecoins also depends on their ability as a means of payment, which relies on the core functions performed by the stablecoin arrangements (BIS, 2021, p. 4). At present commercial bank deposits have clearly proven themselves as a means of payment, while it still remains to be proven if the same is true about stablecoins. As of yet, it is not possible in most everyday point of sale transactions to make payment for goods directly using stablecoins or to readily convert them directly into fiat currency without an intermediary. 4. Case Studies by country 4.1. FED Much like the ECB, the FED has a level of influence that extends far beyond its own bor-ders. As such, the preliminary & exploratory stages of any American CBDC project are by their nature much more protracted and drawn out, with trial rollouts progressing com-parably slowly. As with the digital Euro project, this is also the case for the American CBDC project which has been preliminarily titled “Project Hamilton”. In February 2022, Project Hamilton’s whitepaper was published, detailing the course of action as well as the project scope and research design. The CBDC specifications are de-fined as entailing “a high throughput, low latency, and resilient transaction processor that provides flexibility for a range of eventual CBDC design choices” (Federal Reserve Bank of Boston & MIT, 2022, p. 10). From this mission statement, the reader can inter-pret the main objective of the current design to be the implementation of a minimum viable product of technical reliability, efficiency, security and speed, while maintaining design parameters that are broad enough so that desirable and superfluous elements can be added and removed during the phase 2 further development. At present, Project Hamilton still finds itself in the preliminary research phase, with phase 1 looking to explore both cryptographic components, such as custodial and non-custodial wallet status, as well as components that improve upon the existing financial payment architecture, such as ways to combine CBDC payment messaging and settle-ment. When Hamilton progresses onward to phase 2, it will look to differentiate be-tween the two paths of progress; namely seeking new functionality or pursuing alterna-tive technical designs. Technical designs are likely to revolve around the status of the ledger as distributed or centralised, while new functionality should likely include design elements that seek to match the functionality of existing private DeFi protocols such as smart contracts, programmability and offline payments. While phase 1 of the CBDC project is currently underway, at the time of writing, phase 2 of Project Hamilton is not yet a work in progress and as such the concrete developments around implementation and rollout are as of yet undefined. The extent of the research design that has been decided upon and publicised is that the functionality and technical design will prioritise speed, scalability, and security over any form of decentralisation or consensus mechanism using distributed ledger technology. 4.2. ECB The ECB has yet to roll out any particularly comprehensive or detailed prototype plans for a CBDC at the time of writing. However, there has been substantial planning as well as preliminary discussions for what the scope or mechanism design of a CBDC within the Eurozone might look like. The ECB’s Fabio Panetta has led much of the public facing discourse around a European CBDC and how it might work, since the case was first made in a policy document titled “Report on a digital Euro” (2020). Unlike the central bank of Cambodia, who were already prototyping their retail CBDC prior to its rollout, or the SNB’s Project Helvetia pilot which has already given the Swiss public a good impression of what the wholesale settlement system would be like on the SDX, by comparison the ECB’s Digital Euro project has yet to establish a working proto-type. Instead, the exploratory stage of the Digital Euro was only launched in July 2021, and as such the boundaries of its application have yet to be defined. As the most transnationally interconnected monetary bloc in the world, the Eurozone naturally needs to proceed much more slowly and cautiously with the testing, imple-mentation and rollout of its digital currency than is possible in a smaller country at a similar level of economic development such as Switzerland. 4.3. SNB So far, the SNB has no intention of releasing a retail CBDC. However, the SNB is at pre-sent conducting two different projects in collaboration with the BIS Innovation Hub (BI-SIH) in an attempt to test the waters of wholesale CBDC (wCBDC) use cases. The first Project, named Helvetia, mainly seeks to settle tokenised assets in central bank money, while the second project, named Jura, focuses on cross-border payments between France and Switzerland. It is no surprise that Switzerland as a highly developed country with a population that has wide access to commercial bank deposits is not considering a retail CBDC without a pressing need to. The country would rather profit from the introduction of a wCBDC, as this may improve the efficiency of wholesale payments and especially cross-border payments. 4.3.1. Project Helvetia Project Helvetia is a collaborative project between the BISIH Swiss Centre, SIX Group AG and the SNB that aims to explore the integration of tokenised assets and central bank money on the SDX (SIX Digital Exchange) platform (BIS, SIX Group AG, Swiss National Bank, 2020). Two proofs of concept were tested in project Helvetia Phase I: 1. Issuing novel wCBDC 2. Building a direct link between SDX and the existing central bank system. The main aim of the project was to explore the settlement of tokenised assets in central bank money (BIS, SIX Group AG, Swiss National Bank, 2020). In contrast to more widely available retail CBDCs, access to this new form of central bank money in the shape of a wCBDC is solely restricted to financial institutions and other permissioned institutional actors. Project Helvetia tested the SDX, which is a new DLT platform and a subsidiary of SIX, the primary Swiss exchange market. Each participating bank would be running their own participant node, while the SDX node and the notary node are both operated by SDX. The notary node that is operated and controlled by SDX has two crucial functions: pre-venting double spending and ensuring finality (BIS, SIX Group AG, Swiss National Bank, 2020, p. 12). Figure 4: Project Helvetia Phase I The first proof of concept that was tested (PoC1) was the issuance of novel wCBDC on the native DLT platform (BIS, SIX Group AG, Swiss National Bank, 2020, p. 13). This con-cept fully utilises the advantages of DLT but it also presents many legal and policy issues when it comes to its implementation. The second proof of concept (PoC2) tested was the direct integration of SDX into exist-ing central bank payment systems. This concept would be much easier to implement and would not need as many regulatory or policy changes. However, it does not fully grasp the potential of DLT as the first proof of concept (PoC1) and as such, also has its downsides. PoC2 differs mainly in that the settlement leg remains on the SIC (BIS, SIX Group AG, Swiss National Bank, 2020, p. 13), while PoC1 is settled on the SDX. Integrating the SDX as in PoC2 may be much easier to implement, however it also fails to fully grasp the pos-sibilities of the DLT and does not leave enough room for future innovations. Another important aspect that should be mentioned is that the creation of wCBDC would not change the balance sheet size of the central bank, it would only change the balance sheet’s composition (BIS, SIX Group AG, Swiss National Bank, 2020, p. 18). As the balance sheet was previously made up of reserve balances and cash, the composition with wCBDC would simply be: reserve balances, wCBDC and cash. Project Helvetia Phase II also focused on the issuance of wCBDC but added commercial banks to the experimental test network. These were namely: Citi Bank, Credit Suisse, Goldman Sachs, Hypothekarbank Lenzburg and UBS (BIS, SIX Group AG, Swiss National Bank, 2022). The second phase of Helvetia also helped to integrate wCBDC into the core banking systems of the central bank and commercial banks while also running transac-tions from end to end (BIS, SIX Group AG, Swiss National Bank, 2022, p. 8). Even though the SNB has successfully tested project Helvetia, there are still no actual intentions of a mass rollout of a wCBDC yet. The main challenges remain mainly in the legal and policy areas, as the introduction of a wCBDC would not only bring with it ad-vantages in execution and efficiency, but also a lot of challenges around the legal grey area regarding increasing involvement and liability in payments messaging and settle-ment for the central bank. However, it is to be noted that the SNB argues that project Helvetia would have positive effects on financial stability and would improve operation-al resilience since an overnight wCBDC would allow for 24/7 continuous settlement and thus would facilitate settlement across different time zones (BIS, SIX Group AG, Swiss National Bank, 2022, p. 26). Project Helvetia furthermore aims to overcome inefficien-cies in international settlement, as transactions could be settled across borders by al-lowing selected non-resident banks to hold CHF wCBDC (BIS, SIX Group AG, Swiss National Bank, 2022, p. 31). 4.3.2. Project Jura Project Jura explored the direct transfer of Euro and Swiss franc wCBDC between French and Swiss commercial banks on a single DLT platform (Banque de France, BIS, Swiss National Bank, 2021). Our existing financial system requires a comprehensive overhaul when it comes to cross-border payments. They are at present expensive, dis-aggregated, and slow. Project Jura tries to mitigate these existing problems by using DLT to improve cross-border payments as one of the contemporary priorities stated by the G20 (Banque de France, BIS, Swiss National Bank, 2021, p. 9). It is to be expected in our increasingly digital and globalised world that central banks should pursue improve-ments in the necessary cross-border payments. In 2019 alone, SWIFT processed almost 7 billion cross-border messages (Banque de France, BIS, Swiss National Bank, 2021, p. 9), this clearly indicates the need for an imminent improvement in the standardisation and settlement of existing cross-border payment systems. Project Jura involved the issuance of intraday wCBDCs and tokenised commercial paper, settled cross-border between the French and Swiss participants in the experiment (Banque de France, BIS, Swiss National Bank, 2021, p. 10). All participants had access to the same platform and were able to directly hold and transfer wCBDCs (Banque de France, BIS, Swiss National Bank, 2021, p. 10). The experiments were successful but, as is the case with Project Helvetia, there is not yet any public facing news about the actual rollout of this project. Project Jura would be able to improve financial stability from three perspectives (Banque de France, BIS, Swiss National Bank, 2021, p. 18). Firstly, it reduces risk thanks to the increased use of payment versus payment, delivery versus payment, and the ex-tended use of central bank money. Secondly, the greater competition and diversity that stems from the emergence of a tokenised ecosystem can also provide operational back-up through redundancy and a larger number of cross-border settlement services (Banque de France, BIS, Swiss National Bank, 2021, p. 18). Thirdly, granting non-resident banks access to wCBDC would reduce their need to individually preposition funds with correspondent banks, which would simplify liquidity management and re-duce the cost of cross-border transactions (Banque de France, BIS, Swiss National Bank, 2021, p. 18). If the transnational implementation of Project Jura is effectively able to improve financial stability, it would be in the best interest of central banks as well as commercial banks to implement such a project as soon as possible. 4.4. Sweden Sweden’s cash usage is in steady decline and with this in mind, the Riksbank decided to investigate the possibility of a potential complement or eventual substitute for cash in the form of an e-krona (Sveriges Riksbank, 2021). Sweden is a trend-leader when it comes to declining physical usage of cash and the commensurate increase in digital payments. The Riksbank deems this a sensible reason to test out a retail CBDC, as the decline in consumer access to central bank money may otherwise harbour systemic risks for the financial system. The e-krona is a token-based project using a distributed network based on blockchain technology (Sveriges Riksbank, 2021, p. 5). The e-krona would have similar attributes to cash rather than to conventional commercial bank deposits, such as the ability to store tokens locally with their owner in a form of digitally securitised bearer deposit. Only the Riksbank is able to create and issue e-krona and the key difference between the e-krona and conventional cash is that its value can vary, and that tokens can only be used once. The possibility of financial disintermediation is mitigated by giving each fi-nancial participant their own node to run, thus local data access and management is in-volved as part of the network process and this would therefore not be a direct CBDC. As Sweden’s e-krona is one of the few tangible pilot projects of a retail CBDC that exists in a large, high-income country, following the project’s process is therefore of great in-terest to other developed countries with similar trends in cash decline. Lessons learned from this project include whether or not the technology can handle large-scale retail payments. Such payments tend to encompass vast amounts of microtransactions and thus, the technology would need to be robust enough to handle the high volume of throughput at scale. Unfortunately, the Riksbank has not tested their offline payment functionality yet. This feature is supposed to be one of the core aspects of this type of indirect CBDC, as it is supposed to narrowly mimic cash. By contrast, the Riksbank has already tested different forms of storage for both tokens and keys (Sveriges Riksbank, 2021, p. 1), which are another important aspect when it comes to the safety of DLT. Commercial banks would be running their own nodes and the population would hold the e-krona accounts rather than people directly having accounts at the Riksbank (Wass, 2021, p. 2). This indirect CBDC can definitely help to mitigate financial disintermedia-tion, however it remains to be seen how exactly or to what extent commercial banks would be affected if the e-krona were to be rolled out.