Illustrative Industry Architecture to Mitigate Potential Fragmentation across a Central Bank Digital Currency and Commercial Bank Money

TL;DR

This paper proposes an industry architecture that aligns CBDCs with commercial bank money to prevent market fragmentation, using ecosystems and open banking APIs, with a focus on the UK context.

Contribution

It introduces a novel architecture framework that integrates CBDCs and commercial bank money through ecosystems and open APIs to mitigate fragmentation risks.

Findings

Proposes an illustrative architecture for CBDC and bank money integration

Highlights the role of ecosystems and open banking APIs in the architecture

Focuses on UK CBDC implementation scenarios

Abstract

Central banks are actively exploring central bank digital currencies (CBDCs) by conducting research, proofs of concept and pilots. However, adoption of a CBDC can risk fragmenting both payments markets and retail deposits. In this paper, we aim to provide a mitigation to this fragmentation risk by presenting an illustrative industry architecture that places CBDCs and commercial bank money on a similar footing. We introduce the concept of ecosystems providing a common programmability layer that interfaces with the account systems at both commercial banks and the central bank. We focus on a potential UK CBDC, including industry ecosystems interfacing with commercial banks using Open Banking application programming interfaces.