digitalcurrency

1/3 DEFINITION: Central bank digital currency

Definition: “A CBDC (Central Bank Digital Currency) is a DC (Digital Currency) with the full faith and credit guarantee of the CB (Central Bank) to provide continuous fungibility on a 1-to-1 basis between the CBDC and the underlying CB national fiat currency.” Johnny Mattimore, LDN-10:00-24-Jan-2020. See #cbdc 

I have seen many people trying to lock down the definition of a central bank digital currency. Therefore, this is my contribution to the effort. Please feel free to use it. I’d appreciate it if users cited me as the source (thank you).

I think that how the mechanism works to create the CBDC and to achieve the “fungibility” should be separate to the fundamental definition of the guarantee to assure the 1-to-1 permanent stability between the CBDC and the CB national fiat currency. This is critical for the proper functioning of payment systems (see footnote).

For those familiar with history, this can be seen as just a modern digital version of the currency board 1-to-1 system. I hope this is helpful. Johnny

[SOURCE: this is an extract taken from “The Emergence of a Digital Financial Market Infrastructure”, a series of thought leadership articles by Johnny D. Mattimore. For the full series see his LinkedIn Posts at: https://www.linkedin.com/in/johnny-d-mattimore-082969136/detail/recent-activity/posts/ and select “Articles”.]

Footnote: “The proper functioning of the payment system, however, implies one-to-one convertibility of CBDC with respect to reserves and banknotes (Fung and Halaburda (2016)). Not facilitating one-to-one convertibility would lead to an exchange rate between different types of central bank money, breaking the unity of the currency. However, some have proposed allowing this unity to break under certain circumstances. For example, Agarwal and Kimball (2015) propose abandoning one-to-one convertibility as a way of allowing a floating exchange rate between cash and commercial bank deposits and thus eliminating the effective lower bound. Abandoning convertibility between CBDC and reserves would similarly lead to a floating exchange rate between CBDC and commercial bank deposits.”

Source: https://www.bis.org/cpmi/publ/d174.pdf

See page 6, footnote 12