Legal Issues and CBDCs
A lawyer at the IMF presents some of the legal issues underpinning the “race” to implement CBDCs.
“As any form of money, digital currency requires a sound legal basis. The legal treatment of Central Bank Digital Currencies depends on its design features. The distinction between account-based and token-based has significant implications.“
TOKENS AND ACCOUNTS
Catalina Margulis at the IMF Legal Department presents the legal issues around two main forms of CBDCs –
- Account Based
- Token Based
She also considers the legality of even issuing CBDCs despite the central banks being authorities in their respective jurisdictions.
The IMF analysed these aspects for 174 countries and 61 percent only allow the issuance of coins and notes. Of course, these laws restricting digital currency may easily be changed.
Account based CBDCs would offer normal account type of systems already widely used in banking.
Then an account holder would pay in and withdraw currency as is done commonly now for digital money (e-money).
Under this arrangement, the central bank would have a liability when someone pays into their bank.
The second framework discussed by the IMF is a token based one. This would involve the central bank just issuing tokens instead of notes and coins.
These tokens would enter the economy and be traded in the same manner notes are traded.
Retailers would accept them, and then pay into a normal retail bank account.
Under this framework, the central bank would have no account with the token holder.