Optimal CBDC design for Ukraine through the lens of privacy and security
Keywords:
central bank, central bank digital currency, distributed ledger technology, General Data Protection Regulation, payment system.
Abstract
The growing popularity of cryptocurrencies has put on the agenda the need to develop an alternative and more regulated digital currency design, including a central bank digital currency (CBDC). The objective of the study is to formulate proposals for the development of the optimal design of the CBDC of Ukraine. The study is based on a review of the literature on digital currencies, cryptocurrencies and legislation on personal data protection, payment security and financial supervision. The implementation of the CBDC in Ukraine is associated with numerous technical and legal risks, including: privacy and data security risks; complications of financial monitoring; contradictions with national and international legislation; banks disintermediation risks.
To prevent these risks, a CBDC design is proposed that is compatible with national and international legislation, ensures data privacy and security, facilitates financial tracking, and reduces the risks of disintermediation.
The development of the CBDC in Ukraine could have a significant impact on the country's financial system. However, it is essential that the design of the CBDC is carefully considered to mitigate potential risks.
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References
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Tronnier, F. (2021). Privacy in payment in the age of Central Bank Digital Currency. In Privacy and Identity Management: 15th IFIP WG 9.2, 9.6/11.7, 11.6/SIG 9.2. 2 International Summer School, Maribor, Slovenia, September 21–23, 2020, Revised Selected Papers 15 (pp. 96-114). Springer International Publishing. https://doi.org/10.1007/978-3-030-72465-8_6
Tsang, C. Y., Yang, A. Y. P., & Chen, P. K. (2022). Disciplining Central Banks: Addressing the Privacy Concerns of CBDCs and Central Bank Independence. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.4253888
U.S. Department of the Treasury (2022). The Future of Money and Payments: Report Pursuant to Section 4(b) of Executive Order 14607, 51. https://acortar.link/PB5dGJ
Veneris, A., Park, A., Long, F., & Puri, P. (2021). Central Bank Digital Loonie: Canadian cash for a new global economy. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3770024
Wee, R. (2023). China’s digital yuan transactions seeing strong momentum, says cbank Gov Yi. Reuters. https://acortar.link/VsWcNd
WEF (2021). Privacy and Confidentiality Options for Central Bank Digital Currency. World Economic Forum, Digital Currency Governance Consortium White Paper Series, 5. https://acortar.link/ufD53a
Allen, S., Čapkun, S., Eyal, I., Fanti, G., Ford, B. A., Grimmelmann, J., ... & Zhang, F. (2020). Design Choices for Central Bank Digital Currency: policy and technical considerations (No. w27634). National Bureau of Economic Research. https://doi.org/10.3386/w27634
Atlantic Council. (2023). Central Bank Digital Currency Tracker. Retrieved from: https://www.atlanticcouncil.org/cbdctracker/
Auer, R., Böhme, R., Clark, J., & Demirag, D. (2023). Mapping the privacy landscape for Central Bank Digital Currencies. Communications of the ACM, 66(3), 46-53. https://doi.org/10.1145/3579316
Auer, R., & Boehme, R. (2021). Central bank digital currency: The quest for minimally invasive technology (No. 948). Bank for International Settlements. https://www.bis.org/publ/work948.pdf
Ballaschk, D., & Paulick, J. (2021). The public, the private and the secret: Thoughts on privacy in central bank digital currencies. Journal of Payments Strategy & Systems, 15(3), 277-286.
Banet, J., & Lebeau, L. (2022). Central Bank Digital Currency: Financial inclusion vs disintermediation. Federal Reserve Bank of Dallas, Working Papers, 2218, 49. https://doi.org/10.24149/wp2218
Belke, A., & Beretta, E. (2020). From cash to private and public digital currencies. the risk of financial instability and “Modern Monetary Middle Ages.” Economics and Business Letters, 9(3), 189-196. https://doi.org/10.17811/ebl.9.3.2020.189-196
Bindseil, U. (2020). Tiered CBDC and the financial system. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3513422
Boar, C., & Wehrli, A. (2021). Ready, steady, go? - Results of the third BID survey on central bank digital currency. BIS Papers 114. Basel. Bank of International Settlements. https://www.bis.org/publ/bppdf/bispap114.pdf
Boar, C., & Wehrli, A. (2021). Ready, steady, go?-Results of the third BIS survey on central bank digital currency. BIS papers.
Brunnermeier, M. K., James, H., & Landau, J. (2019). The digitalization of money. (No. w26300). National Bureau of Economic Research. https://doi.org/10.3386/w26300
Сarrat, R. J. (2018). The future of Money: digital currency on monetary policy and trade of the committee on financial services U.S. House of Representatives Serial № 115-11. U.S. Government Publishing Office. https://acortar.link/dGhdPn
Carstens, A. (2019). The future of money and payments. Bank for International Settlements. https://www.bis.org/speeches/sp190322.pdf
Changi, H., Grinberg, F., Gornicka, L., & Miccoli, M. (2022). Central Bank Digital Currency and Bank Disintermediation in a Portfolio Choice Model, 44. [File PDF]. https://acortar.link/oPzyvG
Chernyshova, O., Voznyakovsʹka, K., & Bashlay, S. (2021). The global experience of the development of digital currencies of central banks and its implementation in Ukraine. Economy and society, 33. https://doi.org/10.32782/2524-0072/2021-33-87
Duffie, D., Mathieson, K., & Pilav, D. (2021). Central bank digital currency: Principles for technical implementation. Available at SSRN 3837669. https://doi.org/10.2139/ssrn.3837669
Eren, E., Jackson, T., & Lombardo, G. (2022). Efficient disintermediation with CBDC, 39. [File PDF]. Retrieved from: https://acortar.link/QYaDTr
European Central Bank. (2022). Progress on the investigation phase of a digital euro – second report. https://acortar.link/WxRi25
European Parliament (2019). Blockchain and the General Data Protection Regulation: Can distributed ledgers be squared with European data protection law? https://acortar.link/jN6C0i
Fanti, G., & Pocher, N. (2022). Privacy in Cross-border Digital Currency. A Transatlantic Approach. In Frankfurt Forum on US-European GeoEconomics (pp. 1-25). Atlantic Council.
Fernández-Villaverde, J., Sanches, D., Schilling, L., & Uhlig, H. (2020). Central Bank Digital Currency: Central Banking for All?. Review of Economic Dynamics, 41, 225-242. https://doi.org/10.3386/w26753
FSB (2020a). Financial Stability Board, Enhancing Cross-Border Payments: Stage 1 Report to the G20. https://www.fsb.org/wp-content/uploads/P090420-1.pdf
FSB (2020b). Financial Stability Board, Enhancing Cross-Border Payments: Stage 3 Roadmap. https://www.fsb.org/2020/10/enhancing-cross-border-payments-stage-3-roadmap/
Gross, J., Sedlmeir, J., Babel, M., Bechtel, A., & Schellinger, B. (2021). Designing a Central Bank Digital Currency with Support for Cash-like Privacy. [File PDF]. Retrieved from: https://acortar.link/opFzPf
Hoskinson, C. (2022). Why CBDCs ‘Are A Really Bad Idea. Cardano Feed. https://acortar.link/fOaT0g
Hrytsay, S. O. (2022). Central Banks’ digital currency – threats and challenges. Actual Problems of Native Jurisprudence, (1), 144-149. https://doi.org/10.32782/392256
Islam, Md. M., & In, H. P. (2022). A privacy-preserving transparent central bank digital currency system based on consortium blockchain and unspent transaction outputs. IEEE Transactions on Services Computing, 16(4), 2372-2386. https://doi.org/10.1109/tsc.2022.3226120
Keister, T., & Sanches, D. (2021). Should Central Banks issue digital currency? Working Paper. Federal Reserve Bank of Philadelphia. https://doi.org/10.21799/frbp.wp.2021.37
Kiff, J., ALwazir, J., Davidovic, S., Farias, A., Khan, A., Khiaonarong, T., … Zhou, Z. (2020). A survey of research on Retail Central Bank Digital Currency. SSRN Electronic Journal, 2020(104), 66. https://doi.org/10.2139/ssrn.3652492
Khodakevich, S., Ponomarenko, K., & Urvantseva, S. (2022). Digital currencies of central banks: Essence and prospects of implementation. Strategy of Economic Development of Ukraine, 50, 71-81. https://doi.org/10.33111/sedu.2022.50.071.081
Mancini-Griffoli, T., Peria, M. S., Agur, I., Ari, A., Kiff, J., Popescu, A., & Rochon, C. (2019). Casting light on Central Bank Digital Currency. Oxford University Press, 307-340. https://doi.org/10.1093/oso/9780190077310.003.0012
Meher, A. (2020). Spending Corda State on Different Notaries. Medium. https://acortar.link/2nUFlt
NBU (2022). NBU Unveils E-hryvnia Concept to Payment Market and Virtual Asset Market Participants. https://acortar.link/5RFMnr
Niepelt, D. (2018). Reserves for all? Central Bank digital currency, deposits, and their (non)-equivalence. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3254206
People's Bank of China. (2021). Progress of Research & Development of E-CNY in China, 3. https://acortar.link/wafHvg
Pocher, N., & Veneris, A. (2021). Privacy and transparency in cbdcs: A regulation-by-design AML/CFT scheme. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3759144
Pollock, A. J. (2018). The future of Money: digital currency on monetary policy and trade of the committee on financial services U.S. House of Representatives (Serial № 115–11). U.S. Government publishing office. https://acortar.link/dGhdPn
Ross, R. (2023). Data Privacy and Security Implications of a US Central Bank Digital Currency (CBDC). Seton Hall University. Advance online publication. https://acortar.link/lnMsmU
Salter, A. (2022). CBDC in the USA: Not Now, Not Ever. Aier. Retrieved from: https://www.aier.org/article/cbdc-in-the-usa-not-now-not-ever/
Sandner, P. (2019) How Should Companies Select a Specific Blockchain Framework? Medium. Retrieved from: https://acortar.link/EKWDbm
Santaolalla Montoya, C. (2023). Do central bank digital currencies (CBDC) protect the consumer or are they a mirage. SSRN Electronic Journal, p. 199-211. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4371075
Sethaput, V., & Innet, S. (2021). Blockchain application for Central Bank Digital Currencies (CBDC). 2021 Third International Conference on Blockchain Computing and Applications (BCCA). IEEE. https://doi.org/10.1109/bcca53669.2021.9657012
Sethaput, V., & Innet, S. (2023). Blockchain application for Central Bank Digital Currencies (CBDC). Cluster Computing, 26, 2183-2197. https://doi.org/10.1007/s10586-022-03962-z
Shapoval, Y. (2020). Central Bank Digital Currencies: Experience of pilot projects and conclusions for the NBU. Economy and Forecasting, 2020(4), 97-115. https://doi.org/10.15407/econforecast2020.04.097
Sveriges Riksbank. (2022). E-krona report phase 2022. [File PDF]. Retrieved from: https://acortar.link/pJviER
Syrstad, H. (2023). Introduction of central bank digital currency – necessary legislative amendments. Norges Bank. https://acortar.link/K82FPw
The White House. (2022). Technical Evaluation for a US Central Bank Digital Currency System. https://acortar.link/Nvil8C
Tronnier, F. (2021). Privacy in payment in the age of Central Bank Digital Currency. In Privacy and Identity Management: 15th IFIP WG 9.2, 9.6/11.7, 11.6/SIG 9.2. 2 International Summer School, Maribor, Slovenia, September 21–23, 2020, Revised Selected Papers 15 (pp. 96-114). Springer International Publishing. https://doi.org/10.1007/978-3-030-72465-8_6
Tsang, C. Y., Yang, A. Y. P., & Chen, P. K. (2022). Disciplining Central Banks: Addressing the Privacy Concerns of CBDCs and Central Bank Independence. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.4253888
U.S. Department of the Treasury (2022). The Future of Money and Payments: Report Pursuant to Section 4(b) of Executive Order 14607, 51. https://acortar.link/PB5dGJ
Veneris, A., Park, A., Long, F., & Puri, P. (2021). Central Bank Digital Loonie: Canadian cash for a new global economy. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3770024
Wee, R. (2023). China’s digital yuan transactions seeing strong momentum, says cbank Gov Yi. Reuters. https://acortar.link/VsWcNd
WEF (2021). Privacy and Confidentiality Options for Central Bank Digital Currency. World Economic Forum, Digital Currency Governance Consortium White Paper Series, 5. https://acortar.link/ufD53a
Published
2023-09-30
How to Cite
Hudima, T., Kamyshanskyi, V., Dmytrenko, T., & Shmyhov, M. (2023). Optimal CBDC design for Ukraine through the lens of privacy and security. Amazonia Investiga, 12(69), 73-83. https://doi.org/10.34069/AI/2023.69.09.6
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