European central bank execs explain why CBDCs don’t need blockchain

Before trying to apply blockchain to anything, think why.

Global central bank digital currencies, or CBDCs, do not require the use of blockchain technology, according to executives at major European central banks.

Thomas Moser, an alternate member of the governing board at Swiss central bank, and Deutsche Bundesbank’s Martin Diehl discussed the state of CBDCs at the European Blockchain Convention Virtual 2020 conference on Sept. 21.

During the online panel discussion, both Diehl and Moser seemed to agree that global CBDC projects like China’s digital yuan do not need blockchain, citing a number of reasons.

Moser said that the primary use cases for blockchain intend to provide trust when a project has no central party. “Like for instance Bitcoin, I think it is a very good use case for blockchain,” the exec noted.

However, he went on to say that the central bank involvement makes blockchain use unnecessary because the trust is provided by a central party:

But if you have a central bank then this is the central party. And if you trust that central party, I think then it’s not really straightforward to reason that you need a blockchain.”

The executive also noted that the Swiss National Bank will soon publish a working paper that proposes a retail CBDC without blockchain. According to Moser, the upcoming project will preserve transaction privacy — a key feature of cash — by utilizing the technology of blind signatures instead of a blockchain.

Diehl, the head of payment system analysis at Deutsche Bundesbank, noted that blockchain technology is not necessary for CBDC, citing examples of two major CBDC initiatives like China’s digital yuan and Sweden’s e-krona. “Neither Swedish Riksbank, nor the People’s Bank of China seem to be using blockchain, so blockchain is not a must,” the exec said.

Diehl also noted that there is no sense in implementing public, or unpermissioned, blockchains for CBDC systems. Providing a network for major cryptocurrencies like Bitcoin (BTC) and Ether (ETH), public blockchains cannot be owned by any central party and are completely open to anyone to join and participate. “Unpermissioned blockchains being used for official blockchain transactions for me is not conceivable,” Diehl said.