This paper examines some key legal questions that may need to be addressed by any jurisdiction considering issuing a retail CBDC (“rCBDC”) but does not attempt to provide definitive answers to those questions. It focuses on four areas: the legal classification of rCBDC; the obligations and liabilities of participants in the rCBDC ecosystem; privacy and financial crime; and cross-border issues.
- The legal frameworks governing money, payments and central banking were not drafted with digital central bank money for the public in mind. Jurisdictions may need to consider creating a new legal object/asset for rCBDC with a bespoke monetary and private law framework to accommodate it.
- The rights, obligations and potential liabilities of stakeholders within the rCBDC ecosystem will need to be clearly addressed in the legal framework. Pursuant to policy goals, each risk that could arise in the system might be clearly and unambiguously allocated through that framework to the party that is most appropriate to bear it or best able to mitigate it.
- The legal framework will likely need to draw an appropriate balance between the need to protect the privacy of users, and the need to guard against the criminal misuse of the financial system. While the protection of privacy is an important policy objective, the efforts of the authorities to combat money laundering and terrorist financing may require access to and the sharing of personal data with certain parties. In balancing privacy protection and AML/CFT enforcement in the legal framework for rCBDC, policy makers could draw on the rules that apply in the conventional banking system.
- Policy makers may need to decide whether to allow for access to their rCBDC system by non-resident/non-domiciled end-users or intermediaries. If non resident access is permitted, rules might need to be developed to determine which jurisdiction’s law will apply to disputes as standard conflicts of laws rules may not function well for digital assets. Relevant jurisdictions may wish to consider establishing a bilateral or multilateral framework for determining the applicable law.
- CBDC systems that facilitate the cross-border exchange of CBDCs may be categorised as: (i) compatible CBDC systems, (ii) interlinked CBDC systems, and (iii) a single system. Each model poses separate legal challenges.
A jurisdiction considering issuing rCBDC might need to decide on the appropriate legislative, regulatory and contractual rules for its rCBDC, having regard to its own legal framework, and its CBDC design and policy aims.
Considerable legal work might be needed in each jurisdiction to identify and address the range of legal issues.