[Cryptography] Am I missing something about CBDC ?

Phillip Hallam-Baker phill at hallambaker.com
Thu Dec 17 11:23:49 EST 2020

On Wed, Dec 16, 2020 at 4:42 PM John R. Levine <johnl at iecc.com> wrote:

> The widely read Lawfare blog had this piece on Central Bank Digital
> Currencies
> and money laundering by a financial crimes analyst:
> https://www.lawfareblog.com/central-bank-digital-currencies-threat-money-launderers-and-how-stop-them
> I get the impression that he doesn't really understand how digital
> currencies
> work.  So please tell me if I'm missing something.  I'm not asking whether
> are a good idea in the first place, which is a separate issue.
> CBDCs are issued as tokens by a central bank, let's call it the Fed.  The
> approach seems to be that they're issued in bulk to commercial banks which
> then
> distribute them to their customers following KYC rules.  Then anyone can
> pay
> anyone else using CBDCs.  I presume I pay you by giving you a token which
> you
> present to the Fed, it cancels the token and gives you a new one at which
> point
> you are paid.
> He seems to believe that transactions are cleared through the commercial
> banks,
> but I don't see how that works other than perhaps by forcing users to use
> their
> banks as the gateway to the Fed, or I suppose maybe by keeping your tokens
> in an
> account at your bank, which makes it easier to access them from multiple
> devices.

This is how I would do it.

Think of it as a return to 19th century banking. Every bank runs their own
ledger. So there are 20 banks (say). Every transaction is between customers
of the same bank or between the customer and their own bank.

Interbank transfers are then handled by a system of settlements that clear
daily/hourly whatever. Probably passing through the central bank or some
other clearing house. And this last loop is the only part where real money
is involved.

That is the way I would do it at any rate. Its just bank issued scrip.
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