For Central Banks to go fully digital with the issuance of Central Bank Digital Currencies
(CBDC’s), a blockchain
infrastructure is recommended for longevity.
Lattice Labs infrastructure solution allows Central Banks and financial institutions to
implement an interoperable
blockchain with the use of CBDC’s as a form of payment and safety without the use of
A CBDC is managed on distributed ledger technology (DLT), increasing the speed of
transactions between institutions,
banks and individuals. A CBDC is backed by a central bank’s reserves, and the supply is
fully controlled and distributed
by them as well, just as paper banknotes are.
Take a dive into real-world use cases
Due to the centralized infrastructure and increasing digitization of our lives,
wholesale banking and retail banking both face several challenges.
Banks use proprietary infrastructure to make payments within their own systems.
This makes it costly and time-intensive for banks to settle accounts among
themselves - they must exchange information about the money each bank owes
another, reconcile balances, and transfer funds between correspondent accounts.
These inefficiencies also apply when international transactions are made by
individuals or businesses with overseas partners: data silos cause financial
institutions that have no direct relationship with one another (such as small
local lenders) to get involved in settlement of cross-border payments multiple
times along different routes.
Multiple closed systems
Bank transfers are slow and expensive, so clients of retail banks experience
many problems associated with the wholesale banking system.
Expensive for end users
High barriers of entry
Although the phenomenon of financial exclusion is most pronounced in emerging
economies, it does exist within developed countries. For instance, according to
FDIC statistics 6.5% of US households are "unbanked," and a further 18.7% have
limited access to banking services - economists refer to these groups as being
Loss of monetary control
Central banks use interest rates as one of their tools for adjusting monetary
policy. However, the theory that IOR provides a price floor - keeping market
interest rates from falling below this level - has not held up in practice.
Central banks have been unable to raise the rates of their countries’ currencies
above international market levels, which suggests that interest rate adjustments
are not effective.
Decline of cash
Currently, central banks have no presence in the digital payments space because
private companies dominate this market. Because of economies of scale and
network effects, a small number of firms often dominate an industry - creating
significant systemic risk in the financial system and overall economy. Any
problem with a payment network's operations could affect millions of people.
Unauthorized data collection
Another reason that CBDC is becoming increasingly popular is the need for
The Lattice Labs solution
A Central Bank Digital Currency would move some of the financial industry away
from its current siloed infrastructure
and onto a distributed ledger.
A CBDC can be tailored and benefits from the interoperability that comes with
The use of blockchain by Central Banks allows for the opportunity to embrace
innovation with open-source distributed
ledger technology which has continuous measures and developments enabling
improved features for the future of banking.
More than 70% of institutions are actively researching and developing a CBDC
infrastructure for issuance.
Looking to the future
A modern monetary system
Interbank settlements will be made more efficient by using smart contracts
and distributed ledger technology.
Transfers in different currencies and payment vs. delivery models can
minimize credit default risk.
Direct access to users
When Central banks issue their own digital currencies, they will play a more
active role for individuals using the
monetary system, thereby changing the role for commercial banks in the
financial sector as we know them today.
The role of central banks is magnified with CBDCs, in that they will make
their policies directly felt among the general
By contrast, if CBDCs were designed to offer a yield for holding them (as
opposed to being used as a payment system), it
would compete with other interest-bearing assets such as commercial bank
Digital money for a digital life
Central banks could distribute money directly to the public via targeted
monetary policies. For example, they could have
made the recent stimulus checks in the USA available instantly and according
to programmed conditions.
Safer for everyone
Central Banks using CBDC’s may offer the public an alternative to storing
savings with commercial banks, reducing
financial uncertainty by increasing stability.
Monetary policy enhancement
Ready for the future
CBDC payments enable additional innovations in the financial sector.
A CBDC payment medium will facilitate a new monetary system that will make
it easier to move money around the globe,
allowing payments to clear in minutes instead of days.
Fast and scalable
CBDC for emerging economies
Through the use of CBDCs, emerging economies can compete with other
countries and strengthen their currencies.
Countries that implement CBDC will maintain a greater stability for their
future, making them less susceptible to
exchange rate shocks and liquidity problems.
Encourage CBDC implementation
Use cases of CBDC’s put into practice include:
- CBDC’s can be used as a form of payment between two parties, whether they are
individuals or businesses, just like
- CBDC’s can be used to facilitate banking settlements between institutions or
those that have accounts at a central