Promotion of Open Digital Infrastructures for Financial Services

In Part II of the book, we proposed that regulatory updates would need to be introduced to help central banks address the challenges that come with emerging digital financial landscape. In Part III, we propose that promotion of open digital infrastructures for financial services is another key area that the central banks can do to help address those emerging challenges. The promotion of open digital infrastructures could help provide alternatives to private sector solutions and mitigate some of the key challenges that might arise with private sector solutions: i.e. the challenges of walled gardens, shadow banking, monetary sovereignty, singleness of money, fraud and financial exclusion. Part III thus looks at promotion of open digital infrastructures for financial services, the second area of actions where the central banks might undertake in order to address the challenges of the emerging digital financial landscape.

Chapter 8 first reviews open digital infrastructures for financial services, what they are and why they might be important. The chapter then reviews various governance models and some examples of open digital infrastructures for financial services in various jurisdictions to provide the context.

Chapter 9 reviews some of the technical background that would be useful in the understanding of the design choices facing policymakers, i.e. decentralized, centralized and distributed architectural models.

Chapter 10 zooms into various forms of digital ID, the layer of digital infrastructure underlying safe and secure digital financial services.

Chapter 11 examines digital payment infrastructures, next layer of infrastructures that allow for digital payments, a key functionality of digital financial services.

Chapter 12 examines data sharing infrastructures (e.g. open banking and open finance), the layer of infrastructures that allow consumers to share their data based on consent, to get more personalized services and the layer that brings collaboration and innovation among different players in the digital financial landscape.

Chapter 13 looks at central bank digital currency (CBDC) concepts, then dives into wholesale CBDC and cross-border CBDC from the viewpoint of it providing the underlying infrastructures for next-generation digital payments, potentially with programmability, smart contracts and the ability to be used in a peer-to-peer manner.

Chapter 14 focuses on retail CBDC, as another form of digital money, for use by consumers and merchants, and how it could be used as a platform for innovations for retail payments.