Why is it called 𝐩𝐫𝐨𝐠𝐫𝐚𝐦𝐦𝐚𝐛𝐥𝐞 𝐦𝐨𝐧𝐞𝐲?
The diagram below shows a typical retail 𝐭𝐰𝐨-𝐭𝐢𝐞𝐫 CBDC architecture.
Tier 1 is the 𝐜𝐞𝐧𝐭𝐫𝐚𝐥 𝐛𝐚𝐧𝐤, which is in charge of 𝐢𝐬𝐬𝐮𝐢𝐧𝐠 CBDC. Unlike cash, the issuing doesn’t involve printing out money, rather it is just a digital currencies that exist in the central bank’s system.
Tier 2 is the 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐢𝐧𝐬𝐭𝐢𝐭𝐮𝐭𝐢𝐨𝐧𝐬, including commercial banks, which are in charge of CBDC 𝐜𝐢𝐫𝐜𝐮𝐥𝐚𝐭𝐢𝐨𝐧. They talk to businesses and individuals that hold CBDC for payment transactions.
More than 60 countries have been experimenting with CBDC since 2014, of which 88% use blockchains as low-level tech to build their systems. So smart contracts can be applied to the money. That’s why it is called programmable money.
👉 What problems does CBDC solve?
▶️ Digitalize money transactions to make them completely traceable
▶️ Improve payment efficiency and security
▶️ Improve cross-border payment efficiency