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{\huge Centrally Banked Digital Currency \\ for Illiterate and Low-literate People }
\end{center}

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\begin{abstract}
  Taler is a cryptographic protocol with a Free Software reference
  implementation for a value-based transaction system.  Taler payments are
  executed in fiat currency with privacy and regulatory compliance, which
  makes Taler suitable for a Central Bank Digital Currency (CBDC).

  My Oral Village (MOVE) has been developing user interfaces for electronic
  payment systems that can be used by illiterate and innumerate groups,
  with field experience from Kenya and Pakistan where substantial
  portions of the population cannot read multi-digit
  numbers or text.

  We propose to integrate the user interface work of My Oral Village
  with the Taler payment system to create an inclusive payment solution
  that minimizes the digital divide.
\end{abstract}


\section{Introduction to GNU Taler}

Taler Systems SA is developing an online payment system called Taler, that
broadly fits the requirements of CBDCs.  The major parts
of the system have already been built.  Taler's unique focus is
on regulatory compliance, efficiency and data minimization.  Cryptography is
employed for security.  While Taler includes privacy features, it can still
guarantee that cash flows to merchants/retailers are transparent for anti-%
money-laundering (AML) and know-your-customer (KYC) auditing requirements.
Transactions with Taler execute in one network round-trip time. Taler is
economically viable for micro-payments (payments of 1 cent) as its design
minimizes requirements in terms of CPU time (typically less than 1 M cycles
per transaction), bandwidth (typically 1-10 KB/transaction), and storage
(again a few KB/transaction, with the ability to delete old data once legal
data retention periods have expired).

\subsection{Unique sales propositions}

The unique sales propositions of Taler as it exists today are:

\begin{itemize}
\item All operations are cryptographically secured, with mathematically sound
      proofs for courts and auditors
\item Customer payments are privacy-preserving, like cash
\item Merchants are identifiable in each payment they receive
\item Payments are in existing currencies
\item Payment fraud is eliminated, short of catastrophic failure in cryptographic primitives
\item Linear scalability ensures Taler can handle transaction volumes seen in global payment systems today
\item Suitable for micro-payments due to very low transaction costs
\item The patent-free, open standard protocol and the free reference implementation provide
  long-term sustainability and technological independence from foreign providers
%\item Can be used for smart contracts
\item Ease of use (one-click, instant, no authentication during payment, again like cash)
\end{itemize}

The proposed work will extend this list by making Taler {\bf suitable for
illiterate and innumerate adults}. After consultation with My Oral Village, we
believe the payment process with Taler can be made safe and convenient for
their use. Based on years of direct field research, MOVE develops
locally-validated solutions that blend graphical representations of money,
iconographic navigation cues and metaphors, and experimental insights from
cognitive psychology. We also have plans to make Taler suitable for (numerate)
children.

\subsection{Taler architecture}

The Taler architecture includes a register-based system of bank accounts
for customers and merchants with an escrow-account for the exchange.  The
exchange signs electronic coins into existence, customers use them to sign
contracts and merchants deposit them in return for a credit to the register.
The exchange collects cryptographic proofs that it operates correctly, which
are then checked by an auditor (auditor not shown):

\begin{center}
\includegraphics[width=\textwidth]{../presentations/comprehensive/operations.png}
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Thus, the following components form the core of the system:

\begin{enumerate}
  \item An \emph{Electronic wallet} software stores cryptographic
    tokens of value (called digital coins), implemented via blind
    signatures.  Wallets are typically managed by the end user; a
    \emph{wallet provider} can manage storage of cryptographic
    material for the user, providing backup, synchronization and
    recovery.

  \item The \emph{Exchange} issues digital coins to wallets, after
    receiving fiat money in an escrow account, or based on a
    central bank creating the digital coins as a central bank liability.
    The authorized electronic
    wallet is identified using an ephemeral \emph{reserve public key}
    encoded in the wire payment instructions.  As blind signatures are
    used, the exchange knows that it issued coins of a certain
    monetary value, but not to which wallet.  Digital coins are always
    denominated in a fiat currency (e.g.  Euro).

  \item The \emph{Merchant} proposes contracts to customers and
    receives payment in the form of contracts signed using digital
    coins. The merchant must then immediately clear these
    \emph{deposit permissions} with the exchange.  The exchange checks
    against double-spending, and if everything is in order provides
    the merchant with an instant \emph{deposit confirmation}.  After
    possibly aggregating many micro-transactions, the exchange sends
    money from the escrow account to the merchant's bank account.

  \item \emph{Auditors} are entities that certify which Exchanges can
    be trusted as legitimate. They are not strictly needed in a CBDC
    setting, but can be used by the central bank to verify that its
    own operations have not been compromised.
\end{enumerate}

The implementation of all core components is licensed as free and open
source software (FOSS).


\subsection{Vision}

Our vision is close to the electronic cash system ``DigiCash'' proposed by
David Chaum in the 1990s, except that Taler's design and implementation
supports key features such as giving change, providing refunds, securely
handling aborts and various other practical issues previous technical
solutions lacked.

In summary, the overall system roughly operates as follows: The Taler wallet
is filled via wire-transfer to the Taler exchange's escrow account, where the
subject identifies the Taler wallet eligible to withdraw the CBDC.  Regulators
can limit the amount an entity is entitled to exchange from rand into CBDC,
like ATM withdrawal limits.  When withdrawing electronic coins, they are
blindly signed by the Taler exchange and stored in the consumer's wallet,
which is value-based.  The consumer can then spend its coins at merchants
using cryptographic signatures over electronic contracts.  Merchants must
immediately deposit the coins at the exchange, which performs an online check
for double-spending.  The exchange will then credit the merchant's
register-based accounts using aggregated wire-transfers.


\subsection{Company Profile: My Oral Village}

My Oral Village is a not-for-profit social enterprise incorporated in
Canada. Engaged in human-centred design and field research at the oral-digital
frontier, we build trusted, usable financial-interface solutions for the
world's billion functionally illiterate and innumerate adults to support their
transition into financial inclusion.

Our suite of ``oral information management'' (OIM) tools and solutions enable
poorly schooled individuals to safely and confidently engage in formal
financial transactions. We are currently piloting a hybrid (digital and
paper-based) solution for entrepreneurial pastoralists in northern Kenya, and
testing our ``cash calculator'' for Android in Pakistan. We recently designed
a passbook for new credit union members in Sierra Leone. With MicroSave, we
wireframed a full 'concept-level' mobile money app for northern India. Our OIM
solution for savings groups in the Solomon Islands has been adopted by the
Ministry of Women and the Anglican Church of Melanesia. We are also developing
a field experiment in Kenya with a team of numerical cognition researchers at
the Universities of Tuebingen and Western Ontario.


\subsection{Company profile: Taler Systems SA}

Taler Systems SA was established in 2016 and is headquartered in Luxembourg,
but also has developers in Argentina, Brazil, Germany, Switzerland and the
United States of America. Taler Systems SA was founded as a startup by with
support from INRIA, the French national institute for research in computer
security (\url{https://www.inria.fr/}) and the Free Software community
(\url{https://www.gnu.org/}). % The company is privately owned and debt-free.

Taler Systems SA business model is to provide technical support for users of
the Taler payment system, and to possibly dual-license the Free Software for
users that have specific licensing requirements.  Taler Systems is in the
unique position of not having technological business secrets to protect, as
all of our code and documentation is freely available.  Thus, we can easily
find and train local partners in our technology and focus on providing
second-level support.

We have been involved in consultations with the Swiss National Bank, the
European Central Bank, and the Swedish Riksbank, as all three were interested
in Taler in their respective CBDC initiatives.  However, none of them is yet
at the point where the respective central banks have made any commitments for
any particular direction or technical solution.

\section*{Contact}

\begin{tabular}{l l}
  Dr. C. Grothoff	    &	grothoff@taler.net	\\
  Dr. F. Dold           &   dold@taler.net \\
  L. Schumacher	        &	schumacher@taler.net	\\
  B. Matthews       	&	brett@myoralvillage.org	\\
\end{tabular}

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\end{document}



\subsection*{What would a solution for a register-based CBDC look like?}


\subsection*{What would a solution for a value-based CBDC look like?}


\section*{What is your vision for an CBDC?}
% Are there other possible solutions than register-based and value-based that you consider to be more appropriate?}




\section*{What challenges and opportunities do you envisage?}

Taler provides the advantages of cash while supporting taxation and
limiting criminal abuse, as recipients of payments are identifiable.
Furthermore, Taler transactions are faster, easier and more secure
than cash or credit card transactions.

The main challenge is the integration of the Taler merchant backend
into the diverse POS systems that exist today.  While integrating
Taler can be done with a few hundred lines of code, NFC-enabled POS
systems would require at least a firmware update.  Convincing vendors
to upgrade their systems will thus require a major up-front
investment.

Taler also requires further development to ensure that wallets are
available on all relevant platforms.  However, consumer systems are
much less diverse and hence this effort is significantly smaller.

Deploying Taler at scale should have no major impact on monetary
policy because the issued CBDC would be 1:1 backed by fiat currency
in the escrow account at the central bank.  However, if there is a
significant shift from the use of credit-cards to CBDC, there might
be a reduction in M2 from fractional reserve banking as CBDC is
debit-based while credit-cards are credit-based.  Thus, instead of
commercial bank money being created from debts, consumers may
effectively hold CBDC claims against the escrow account at the
central bank.  The resulting reduction in M2, and the loss of revenue
at banks from credit-card interest payments, may require adjustments
in monetary policies.


\section*{What is missing in our concept?}


A key requirement for governments considering electronic payment
systems is the preservation of the Commons.  Cash is a Commons as all
market participants have equal liberties in handling cash.  If cash is
replaced by proprietary solutions such as Visa's credit card system or
ApplePay, these companies have exclusive control over critical
infrastructure, which often leads to high fees.  Worse, such payment
service providers may discriminate against individuals or certain
businesses and can refuse service to individuals or businesses without
judicial oversight.

In contrast, Taler is implemented as Free Software distributed under
the GNU General Public License, and without patent encumbrances.  This
ensures that any government retains sovereignty after deploying Taler,
as it can liberally inspect, use and modify the software.  In
particular, no foreign government or company can impose their own
restrictions or regulatory regime.  Governments can foster competition
between multiple Taler exchange operators, or run a Taler exchange as
a government monopoly equivalent to a government mint for coins.



\section{Addressing CBDC Requirements}

We now sketch how the Taler components map to a Centrally Banked Digital
Currency system run by the ECB or national central banks (NCBs), according to
the draft requirements.  Taler is a value-based payment system (as opposed to
an account-based system), and thus we will address the common requirements
C1-C8 and requirements V1-V4 specific to the value-based model.

\paragraph{C1. Tokenization:} \emph{Units of digital currency (CBDC units) are only created against money
blocked on a transit account, which will be held by ECB/NCBs}.

The ECB/NCBs would simultaneously take the role of the Taler Exchange
and Taler Auditor (or could outsource operations to qualified third parties).

\paragraph{C2. Issuance:} \emph{A central authority creates new CBDC units on
the reception of the transfer of an equivalent EUR amount from the
participating bank to the transit account. The same logic applies to the
destruction of existing CBDC units, where the central authority destroys CBDC
and releases EUR that were previously held by the ECB/NCBs in the transit
account.}

The ECB/NCBs create new CBDC units by issuing Taler digital coins,
and destroy CBDC units by accepting digital coin deposits from merchants, subsequently releasing
funds blocked in the escrow account and sending them to the merchant's bank account.

\paragraph{C4. 1-on-1 parity rule:} \emph{The parity rule applies when CBDC units are newly created or destroyed,
meaning that for each EUR blocked in (released from) the transit account there will be exactly
one CBDC created (destroyed). The parity rule also applies when CBDC are exchanged for
commercial bank deposits or physical cash, and vice versa.}

Digital coins in GNU Taler correspond 1-on-1 to a
value in a fiat currency such as the Euro.

\paragraph{C4. Two-tier structure:} \emph{The central authority issues CBDC only to entities entitled to deposit funds
in the transit account held at ECB/NCBs in exchange for newly issued CBDC units. Also, end-
users’ access to the CBDC payment system is intermediated via other entitled entities, acting as
gateways. All these entities, hereafter “tier-2 entities”, could be commercial banks or non-banks
(for example, payment service providers (PSPs), wallet providers etc.).}


With Taler, national banks could serve as
the primary Tier-2 entity, establish customer's identities (KYC) during bank
account setup, and facilitate the transfer from a customer's bank
account to the exchange's escrow account.  A secondary Tier-2 entity are the wallet providers.
Banks can serve as wallet providers, but other third party businesses could offer
a wallet backup/sync/restore services as well.  Customers are also given the option to be
responsible for the security of their wallet on their own, and manage private keys directly
and on their own device.


\paragraph{C5. Compliance with AML regulation:} \emph{Transactions with amounts above a certain threshold must be
disclosed to relevant parties as required by the AML regulation. In general, the system must be
designed in a way that discourages end-users from using it for anonymous large-value
transactions.}

Strict withdrawal limits can
be placed on customers' bank accounts.  Merchants can be required to collect
customer data for critical transactions.  Due to the technical measures
that provide transparency of cash flows to merchants, the compliance of
merchants is easy to verify.

\paragraph{C6. Fees:} \emph{The system should enable fee collection. The issuance of CBDC to banks and the
destruction of returned CBDC are free of charge for the entitled tier-2 entities (i.e. banks). Tier-2
entities can, however, charge fees to end-users for services they provide, such as their
involvement in the transfers of CBDC and/or the exchange of EUR into CBDC and vice versa.}

Taler has a flexible fee structure that is easily configured so that Tier-2 banks
can charge for CBDC creation and other activities.


\paragraph{C7. Availability:} \emph{Payments are processed 24 hours a day, 7 days a week, 365 days a year, without
operational downtimes.}

Taler requires no manual processing and can be made highly
available with standard software deployment and operations techniques.


\paragraph{C8. Throughput, transaction time and micropayments:} \emph{The
payment system must be able to handle a sufficiently large amount of
transactions. Each transaction must be processed real-time (to be compliant
with the SEPA Instant Credit Transfer (SCT Inst) scheme, the transaction time
would have to be maximum ten seconds). Furthermore, the payment system
should/could enable micropayments (low value, large volume, low cost, real time
transactions).}

Transactions
with Taler are processed in the order of milliseconds.  Unlike DLTs, Taler can
be easily scaled both horizontally (sharding, more processing nodes) and
vertically (faster machines).  Since multiple payments to a merchant can be aggregated into
one bank transfer, even micropayments with fractions of a cent are possible.  All coins
are issued with expiration dates, ensuring that the exchange may eventually delete ancient
transactions.

\paragraph{V1. Non-interest-bearing:} \emph{In the value-based model, holdings of CBDC do not bear interest - neither
positive nor negative.}

In Taler, digital coins do not bear interest; however,
when coins expire it is possible to charge fees when the electronic wallets trade
expiring coins for fresh coins. This feature may be used to
provide a mechanism for negative interest rates (for non-circulating coins).


\paragraph{V2. Limitation of bank runs:} \emph{In the value-based model, to avoid a situation, in which end-users
(suddenly) shift large amounts of their commercial bank deposits to CBDC, daily (potentially also
weekly or monthly) limits should be imposed on the amount that can be converted from
commercial bank deposits into CBDC.}

Bank runs are discouraged and limited with Taler:  (1) Withdrawal
limits can be imposed by the Tier-2 banks on the withdrawal of CBDC units; (2) wallet providers may place limits
on how much money can be stored in online wallets; (3) customers that mange their own wallet are discouraged from
storing large amounts of CBDC units in their wallets, as they must ensure its safety similar to a physical wallet;
(4) modest expiration times with modest refresh fees make hoarding coins unattractive.


\paragraph{V3. Anonymity and AML:} \emph{The system should allow anonymous low-value transactions (below a
certain amount used as threshold). Moreover, it should be possible to trace large-value
transactions and link them to the identities of the participants (through KYC). Furthermore, as
countermeasure against splitting large-value transactions into multiple low-value anonymous
transactions, it should be possible to identify multiple low-value transactions which are
processed within a certain period of time and which sum up to an amount greater than the
chosen threshold.}

The exchange does not know which customer owns which coin
due to the use of blind signatures during the withdrawal process.
AML measures are based on the \emph{income transparency} feature,
where cash flows to merchants are visible to the exchanges (and
thus ECB/NCBs).  As the merchant redeems CBDC units with a transaction to their bank account, the KYC process
already happened when the merchant opened their SEPA bank account.  Furthermore, the
deposit permissions are linked to the contract with the customer, allowing authorities
to validate the plausiblity of the transaction during tax audits.
With Taler, ownership of digital coins between mutually distrusting parties can only be securely transferred with a digital coin deposit via the exchange.
This discourages ``invisible'' payments by sharing digital coins between wallets
without involving the exchange.

\paragraph{V4. Ownership and spending rights of CBDC:} \emph{In the value-based model, units of CBDC are held by
end-users themselves. Each end-user has cryptographic information (e.g. private keys, other
secrets) without which CBDC units associated with that particular cryptographic information
material cannot be spent. Spending rights are defined by technology (e.g. if you have private
keys you can spend).}

Technically literate
users have the option to manage their own wallets and private keys, whereas
other users can use wallet backup/sync/restore providers.

\section*{Contrast and Relationship to DLT-based Systems}

The Taler payment system is independent from Distributed Leder
Technology (DLT) systems.  In particular, Taler payments are not
necessarily backed by any blockchain or cryptocurrency.  Even though
Taler uses cryptographically secured payment tokens, it is distinct
from ``cryptocurrencies'': Taler is a very efficient electronic
payment system with certain characteristics like cash, but it is not a
currency.  Taler is designed to serve as a payment instrument for
retail commerce, in contrast to DLTs which are generally used more as
a long-term stores-of-value or as speculative assets.

Some technological advancements made by DLTs could potentially benefit Taler.
For example, public cryptographic key material and data relevant for auditing
could be further secured by a distributed ledger.  Yet a distributed ledger is
not mandatory to operate Taler, as payments are facilitated by a federation of
trusted entities, with oversight from each other and/or a central institution,
not too dissimilar from how traditional banking systems work.
