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A proposal for a layer-2 CBDC on a rollup

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  • Remo Nyffenegger

    (University of Basel)

Abstract

This paper presents a proposal for introducing a central bank digital currency (CBDC) within a permissionless blockchain environment, specifically utilizing a layer 2 rollup. Several factors make exploring a CBDC on a blockchain worthwhile, including the potential demand for public money on blockchains and leveraging blockchain fundamentals for programmable payments. While the issuance of CBDC on a layer 1 blockchain may be a straightforward approach, it comes with drawbacks such as dependencies on network rules and limited privacy. Instead, I propose a design where an intermediated CBDC is issued on layer 2 through a zk-rollup architecture by licensed financial intermediaries who also provide tokenized deposits on layer 1. This paper delves into the technical specifications, economic considerations, as well as the advantages and limitations of this proposed design.

Suggested Citation

  • Remo Nyffenegger, 2024. "A proposal for a layer-2 CBDC on a rollup," Digital Finance, Springer, vol. 6(3), pages 543-571, September.
    • Handle: RePEc:spr:digfin:v:6:y:2024:i:3:d:10.1007_s42521-024-00115-2
    DOI: 10.1007/s42521-024-00115-2
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    References listed on IDEAS

    as
    1. Henry, Christopher S. & Engert, Walter & Sutton-Lalani, Alexandra & Hernandez, Sebastian & Mcvanel, Darcey & Huynh, Kim P., 2023. "Unmet payment needs and a central bank digital currency," Journal of Digital Banking, Henry Stewart Publications, vol. 8(3), pages 242-255, December.
    2. David Chaum & Christian Grothoff & Thomas Moser, 2021. "How to issue a central bank digital currency," Working Papers 2021-03, Swiss National Bank.
    3. Charles M. Kahn & Maarten van Oordt & Yu Zhu, 2021. "Best Before? Expiring Central Bank Digital Currency and Loss Recovery," Staff Working Papers 21-67, Bank of Canada.
    4. Sky Guo & Joseph Kreitem & Thomas Moser, 2024. "DLT Options for CBDC," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 13(1), pages 57-88.
    5. Sebastian Infante & Kyungmin Kim & Anna Orlik & André F. Silva & Robert J. Tetlow, 2022. "The Macroeconomic Implications of CBDC: A Review of the Literature," Finance and Economics Discussion Series 2022-076, Board of Governors of the Federal Reserve System (U.S.).
    6. Cyrus Minwalla & John Miedema & Sebastian Hernandez & Alexandra Sutton-Lalani, 2023. "A central bank digital currency for offline payments," Staff Analytical Notes 2023-2, Bank of Canada.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Central bank digital currency; Tokenized deposits; CBDC design; Blockchain; Rollup; Layer 2;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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