commit 30a915647e4072709085d7f464e157ba0f8c1375
parent b0f7b807e8cd2b7cc5798069ddefcd8ab81a85ee
Author: Christian Grothoff <christian@grothoff.org>
Date: Sun, 26 May 2019 12:25:00 +0200
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1 file changed, 123 insertions(+), 4 deletions(-)
diff --git a/sa/sa.tex b/sa/sa.tex
@@ -697,62 +697,181 @@ for these questions on the basis of our technology.
%the project, can either be based on distributed ledger technology (DLT) or
%cryptography.
+Deployment models using a truly distributed ledger will prove exceptionally
+expensive and unable to handle the require transaction rates to be relevant
+for non-criminal enterprises.
+
+In contrast, cryptographic techniques like those offered by Taler require
+professionally-run critical infrastructure, but will then be able to handle
+transactions at rates comparable to those provided by cash today at lower cost.
+
\paragraph{What are the emerging technologies that underpin CBDC designs and which
-technology option(s) are appropriate, and why?}
+ technology option(s) are appropriate, and why?}
+
+The Taler system was designed from its inception in 2013 to underpin a CBDC
+for a socio-liberal society, respecting both the need for the state for
+taxation and fundamental human rights, chiefly the protection against
+discrimination and the right to privacy.
+
+Alternative designs will generally infringe upon either of these two fundamental
+aspects, either enabling totalitarian control or an unrestricted criminal
+economy.
\paragraph{How would these technologies integrate into the SARB current and future
architecture?}
+Taler would be integrated via one or more escrow accounts in the
+existing register-based banking system. Money transferred into these
+escrow accounts by social security agencies or citizens would move
+into the respective electronic wallets of the consumers via an
+Internet service. Eventually, ATMs might also be used to exchange
+cash deposits for CBDC, or transfer funds from bank accounts to
+electronic wallets via NFC. The overall changes to the SARB's
+architecture would be minimal, except that the operation of the
+Taler system at scale may require an expansion of the existing
+data centers.
+
\paragraph{What are the possible transition arrangements, after due consideration of all the
relevant economic and financial/financial system implications as articulated
below?}
+Once an exchange is operational, customers and businesses would be
+free to gradually migrate payments to the Taler CBDC. Given the
+cost, security and convenience advantages, we expect this to be
+largely driven by market forces. The CBDC would co-exist and
+compete with existing payment methods (cash and commercial offerings).
+As Taler is reserve-based, it would not compete with credit cards
+used by consumers to get credit.
+
+We expect the fastest uptake to be in the market for online payments and
+micropayments. Micropayments in particular will provide an alternative
+new business model, especially for businesses depending on online
+advertising for revenue today.
+
\subsection{Focus area 2: Policy impact}
\paragraph{Why should the SARB consider the issuance of a CBDC? How does issuance
link to the SARB’s mandate?}
+CBDC is a natural progression from cash. Compared to cash, Taler offers
+superior protections against counterfeit, usability for online transactions,
+lower cost, and income transparency / tracability.
+
+Furthermore, SARB would be truly in sovereign control of the national money
+supply (at least as far as the CBDC is concerned) and not depend on foreign
+entities providing secure printing services.
+
\paragraph{How could the respective design options impact monetary policy, financial
stability, fiscal policy, financial market structures and any other policy objectives
(financial inclusion, competition etc.)?}
+A CBDC based on Taler opens a few additional options for monetary policy, such
+as the possibility of charging a negative interest rate on CBDC.\footnote{For
+ a historic experiment with negative interest on cash, see
+ \url{https://en.wikipedia.org/wiki/W\%C3\%B6rgl#The_W\%C3\%B6rgl_Experiment}}
+
+A Taler CBDC may provide a national electronic payment standard, reducing
+friction from a multitude of commercial offerings.
+
+Using an open standard with a Free Software reference implementation will
+reduce technological barriers to entry and monopoly abuse (say by credit
+companies charging high fees). Taler's privacy-respecting design ensures an
+equal playing field for all. Finally, the Taler wallet could be augmented
+with features to help citizens manage their budget, improving financial
+literacy.
+
\subsection{Focus area 3: Intended and unintended consequences}
\paragraph{What are the potential economic and financial system impacts (e.g. on gross
domestic product, inflation targeting, monetary policy transmission mechanisms,
and impacts on financial institutions)?}
+Lower transaction costs should have similar impacts on gross domestic
+product as a similar reduction in VAT, except without the government
+spending cuts that usually follow tax reductions.
+
+Taler should be neutral on inflation targeting and monetary policy
+transmission mechanisms.
+
+Financial institutions that rely on income from providing electronic
+payment services may see some loss in profits. However, as Taler has
+fundamentally lower costs, the losses in profits by commercial payment
+service providers would be significantly below the cost reductions
+achieved at a national scale.
+
\paragraph{What are the major benefits and risks (including cyber-risks)? What potential
attack vectors are related to the issuance of a CBDC? What are the SARB’s
liability implications in the event of a significant breach?}
+CBDC systems, as all networked systems, require high-security and
+high-availability deployments. Power- and network outages would have
+more-or-less catastrophic impacts on the ability of businesses to run
+transactions. Thus, high levels of redundancy should be in place to provide
+availability once a significant share of transactions is performed by
+Taler. SARB may also want to mandate that shops continue to accept physical
+cash.
+
+Taler includes key revocation mechanisms to bound the worst-case impacts of
+cyber attacks compromsing private keys. Any given private key would be used to
+only sign a limit amount of CBDC into existence. Compromising that private key
+would result in financial damage limited to the amount of {\em legitimate}
+CBDC signed into existence with that key. Thus, financial liabilities from
+issuing CBDC with Taler are limited, and frequent re-keying can be used to
+further minimize the potential damage.
+
+
\paragraph{What are the lessons learned from practically issuing a CBDC in a test
environment?}
-
+We expect to learn about the complexity of integrating Taler with
+the wire transfer system of SA, and SARB to learn how easy (or
+difficult) it is to migrate existing services to support the Taler
+protocol.
+
+SARB will also learn details about the regulatory capabilities Taler offers,
+and where the limitations on regulation are.
+
\subsection{Focus area 4: Legal and regulatory regime}
\paragraph{What are the legal implications and impacts of issuing a CBDC?}
+
+
\paragraph{What would a regulatory regime need to consider (e.g. how would the CBDC
scheme be structured and who would determine the scheme ‘rulebooks’)?}
\paragraph{What potential high-level rules would need to be considered (e.g. participation
criterion, chargebacks, liability shifts).}
+Compared to other electronic payment systems where liabilities are typically
+with the payment service provider, Taler shifts some liability to the
+consumer: if a consumer's system is compromised, the attacker may spent the
+consumers CBDC, just like a burglar may steal a physical wallet full of cash.
+
\subsection{Focus area 5: Ongoing monitoring, and incorporating learnings and}
perspectives from other central banks and related local and international
forums}
\paragraph{Continued participation and research in global developments pertaining to CBDC.}
-
+
+Taler Systems SA is involved in various academic communities (W3C, IETF,
+Bankademia) and will continue to evolve Taler to try to best meet the business
+and regulatory requirements of our customers.
+
\paragraph{Incorporating learnings and perspectives from other global participants in CBDC
-in the SARB CBDC project, where relevant.}
+ in the SARB CBDC project, where relevant.}
+
+Taler Systems SA will continue its engagement with commercial
+and central banks on a global scale, and of course feed this
+experience into any engagement with SARB.
\paragraph{Ongoing engagement with key stakeholders (local and international) on the topic
of CBDC to broaden the knowledge base and relationships.}
+We know that three European central banks are quite interested in
+Taler, and while they have made no decisions on CBDCs, we expect
+them to closely watch any experiments with a Taler CBDC in SA.
\section{Conclusion}
