Unlike other cryptocurrencies, CBDC can be converted at par to banknotes like stablecoins and all the other more traditional payment solutions. The new payment solution is electronic, and it can be universally or locally recognized on the basis of the protocol adopted by the supervisory authority. Based on the Central Bank’s choices, the CBDC can be constructed with an account model that offers interest on deposits or as a token model that works like cash, cryptocurrencies, and stablecoins (UK Finance and EY, 2021).
To create a new payment, both the payment sender and the payment recipient create new commitments to fresh serial numbers and the updated account balances that add the payment value to the recipient’s balance and deduct the payment value from the sender’s balance. The payment sender will also create a zero-knowledge proof that shows that both commitments are updated with the correct amount and the payment sender has sufficient funds in their current commitment. The payment recipient then sends the new commitments and the proof to the payment validators. As with public ledgers, only validators and the sender need to be online to process a transaction. In particular, validators should be active at all times to ensure the system remains operational.
The regulation of CBDC needs to strike a balance between information protection and supervisory compliance. On the one hand, protecting user’s personal information is a primary regulatory consideration; on the other hand, financial service providers need to comply with “know-your-customer” guidelines to prevent criminal activities. The protection of the personal information of CBDC users is closely related to the success of digital currency generalization, and information protection is particularly important when the PBOC attempts to collaborate with other central banks to find the potential of m-CBDCs. This chapter, therefore, proposes a regulatory framework for CBDC information protection in China, linking digital currency protection to existing regulations, and discussing the identity of regulators and their specific rights and obligations within the future CBDC regulatory framework in China. The development of new technology decreased the demand for cash in both developing and developed economies. Some central banks started to promote the development of national digital retail payment systems that can compete with global platforms (Bofinger and Haas, 2023).
The rise of quantum computing poses significant threats to traditional cryptographic systems. Unlike classical computers, quantum computers solve complex mathematical problems much faster, potentially undermining current cryptographic protocols. Designing a future-proof framework for cryptographic security is challenging, as rapid advancements in technology outpace existing solutions. Rather than relying on a single “bulletproof” system, a flexible, technology management approach is necessary to regularly assess and mitigate risks from evolving quantum threats. Eisenbach, Kovner, and Lee document how escalating levels of private information about network interconnectedness (breaches of confidentiality) and days with large payment volumes allow attackers to maximize damage and systemic risk.108Ibid., 24–26.
While post-quantum cryptographic protocols exist, many remain experimental and unproven against classical computers. For a robust digital currency infrastructure, a modular system design could enable replacement of cryptographic primitives, allowing adaptation as needed. However, this approach is technically challenging—particularly for blockchain systems, where cryptographic components are deeply integrated into the ledger.
