CBDC Custodial Models

Target 

Individuals and SMEs

Problem

Custody of CBDC by ‘retail’ entities is a design consideration for the issuance of CBDC, with user experience, privacy and security issues to be addressed. 

Solution

Trial three custody models to assess pro’s and con’s:  

• non-custodial  
• custodial with beneficial ownership and KYC linkage 
• custodial with pooled holdings with custodian 

CBDC Leverage

Cash-like digital value usable online, with finality of settlement 

The Opportunity

CBDC has been proposed as complementary to physical cash for retail and business use, offering a form factor more conducive to digital usage in a modern economy. Yet it competes with traditional ‘private money’ and needs to be distinguished via legal ownership, usage experience and privacy features, while ensuring security and compliance with legislative and regulatory requirements. 

While many policy considerations have yet to be explored, this use case offers the opportunity to trial different custodial models to inform policy choices. 

Pilot

Three custody models were piloted: 

1. Non-custodial CBDC holdings: Each holder’s KYC details are linked to pilot CBDC holdings on the CBDC ledger to prove legal ownership. A mobile app offers the ability to receive, view and transfer pilot CBDC to other holders, without any intermediary provider, via control of their own keys to their holdings. 
2. Custodial Holdings with beneficial ownership: Each holder’s KYC details are linked to pilot CBDC holdings on the CBDC ledger to prove legal ownership. A mobile app offers the ability to receive, view and transfer pilot CBDC to other holders, via the intermediary provider, who controls their keys to their holdings. 
3. Custodial Holdings with pooled ownership: Each holder is KYC’ed but their pilot CBDC holdings are held in a pool by an intermediary, with the aggregate holdings controlled by the intermediary’s keys on the CBDC ledger. A mobile app offers the ability to receive, view and transfer pilot CBDC to other holders, via the intermediary provider. 

Digicash also demonstrated token by token backed by pilot CDBC for $5, $10,$ 20, $50 and $100 pilot CBDC denominations. A small number of individual clients were recruited to participate in the pilot. Digicash KYC’ed clients and sold them pilot CBDC for fiat. Digicash purchased pilot CBDC in bulk from the authorised Distributor.