BIS proposes hybrid retail CBDC model blending central bank oversight with private sector roles

The Bank for International Settlements (BIS) has unveiled a comprehensive framework for designing retail central bank digital currencies (CBDCs), emphasizing a hybrid model that integrates central bank control with private sector collaboration.

Developed by the Consultative Group on Innovation and the Digital Economy (CGIDE), the report provides a roadmap for central banks in the Americas and globally as they explore this evolving financial tool.

The hybrid approach proposed in the report enables central banks to retain governance over CBDC issuance and infrastructure while delegating user-facing responsibilities to private intermediaries.

These intermediaries would handle functions such as Know Your Customer (KYC) verification, wallet management, and transaction facilitation. This model ensures efficiency and scalability while addressing concerns about user privacy and compliance with anti-money laundering (AML) regulations.

The architecture includes four core processes: user enrollment, CBDC issuance (cash-in), CBDC withdrawal (cash-out), and intra-ledger transfers.

Notably, the system supports tiered KYC mechanisms, offering basic wallets for low-value transactions with minimal identity requirements and advanced wallets for higher-value transactions under stricter regulatory standards.

Offline payment capabilities, a significant feature of the proposal, aim to expand access to underserved and unbanked populations. According to the report:

“The hybrid model bridges the gap between centralization and decentralization, offering resilience, accessibility, and enhanced privacy protections.”

The BIS report highlights advanced functionalities that CBDCs could bring to the financial ecosystem, including programmability through smart contracts, asset tokenization, and seamless integration with DeFi.

According to the report, these features could enhance liquidity, automate transactions, and create new financial arrangements, positioning CBDCs as foundational tools for modern economies.

For example, tokenized CBDCs could simplify financial settlements by enabling atomic transactions, removing the need for multi-step reconciliation processes. They could also facilitate cross-border payments, reducing costs and processing times while promoting greater competition and efficiency.

The report emphasized that a programmable CBDC platform could transform supply chain financing and support innovations like contingent payments. It drew on global experiences, referencing Jamaica’s JAM-DEX, China’s e-CNY, and Peru’s offline-enabled pilot program targeting rural areas.

It also addressed technical challenges, including interoperability with existing payment systems, ensuring privacy without compromising compliance, and safeguarding against cyber threats. The BIS emphasized that the proposal is a flexible framework meant to spur dialogue and feedback among stakeholders.

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