The Evolution of Financial Systems: IT Governance Models for Central Bank Digital Currencies

Central Bank Digital Currencies (CBDCs) are reshaping financial markets with blockchain and digital wallets, requiring new IT governance models for secure, efficient transactions. This research highlights evolving governance structures and underscores the importance of interoperability and continuous innovation in IT frameworks.

Central Bank Digital Currencies (CBDCs) are emerging as a transformative force in the financial sector, representing a legal form of currency issued by central banks and supported by Distributed Ledger Technologies (DLTs). These virtual currencies leverage advanced digital encryption and node network technologies, potentially serving as a universal means of payment in the digital era. This development necessitates a comprehensive understanding of the IT governance required to support their integration into financial markets. The research, conducted by Carlos Alberto Durigan Junior from POLI USP, Mauro De Mesquita Spinola from POLI USP, Rodrigo Franco Goncalves from UNIP, and Fernando Jose Barbin Laurindo from POLI USP, aims to answer two pivotal questions: what IT resources and tools are required for CBDC governance, and what IT governance models are emerging due to CBDC adoption?

Unlocking the Potential of Blockchain and Digital Wallets

The study employs a Systematic Literature Review (SLR) methodology, analyzing fourteen papers sourced from the Bank for International Settlements (BIS), Scopus, and Web of Science. This methodological approach ensures a rigorous and comprehensive examination of the existing literature, providing a robust foundation for understanding the IT governance landscape for CBDCs. The findings highlight several IT resources crucial for the successful implementation and governance of CBDCs. These resources include blockchain technology, digital wallets, cross-blockchain communication, and other distributed ledger technologies. Blockchain technology, with its decentralized and secure nature, forms the backbone of Central Bank Digital Currencies infrastructure, enabling secure, efficient, and transparent financial transactions. Digital wallets facilitate the storage and transfer of digital currencies, providing a user-friendly interface for consumers and businesses. Cross-blockchain communication ensures interoperability between different CBDC systems, a critical feature for seamless international transactions.

Diverse Governance Models for Digital Currencies

The paper identifies various IT governance models for CBDCs, reflecting the diverse approaches central banks may adopt in implementing these digital currencies. These models include direct CBDC, hybrid CBDC, and intermediated CBDC. Each model presents unique characteristics and governance structures, tailored to meet different operational and regulatory requirements. The direct CBDC model involves the central bank handling all payments and maintaining comprehensive records of retail holdings. This model centralizes the management of the digital currency, ensuring direct control and oversight by the central bank. The hybrid model incorporates a two-tier structure, with intermediaries managing real-time payments while the central bank retains a copy of retail holdings or runs a wholesale ledger. This approach balances central control with operational efficiency, leveraging the strengths of both central and intermediary systems. The intermediated model, on the other hand, uses intermediaries to issue and redeem CBDCs, with the central bank operating the wholesale payment system. This model decentralizes some aspects of CBDC management, allowing intermediaries to play a significant role in the distribution and transaction processes while the central bank maintains oversight at a higher level.

The Importance of Interoperability and Cross-Communication

The research underscores the critical role of IT resources and governance models in the successful adoption of CBDCs. It highlights the importance of interoperability, cross-communication, and platform-based economy considerations. Interoperability, in particular, is crucial for the seamless operation of CBDC systems, enabling different digital currencies to interact and exchange data efficiently. Cross-communication between distributed ledger technologies ensures that CBDC systems can operate cohesively within a broader financial ecosystem. The concept of a platform-based economy, where economic activities are organized around central payment functionalities, further underscores the need for robust IT governance frameworks.

Evolving Governance Models in a Rapidly Changing Landscape

Despite the detailed exploration of IT elements necessary for CBDC governance, the study acknowledges that the IT governance models for CBDCs are still evolving. The current literature provides a foundational understanding, but there is a clear need for further research and practical exploration. This evolution is driven by the rapid technological advancements and the diverse requirements of different countries and financial systems. The research emphasizes that future studies should focus on identifying the specific roles of IT resources in CBDC governance, exploring both technical and managerial aspects of IT infrastructure, and describing IT governance in preliminary CBDC use cases. These future directions will help in developing a more mature and comprehensive understanding of IT governance models suitable for the dynamic landscape of digital currencies.

Paving the Way for Future Research and Practical Exploration

The paper contributes significantly to the literature on CBDC governance by identifying key IT resources and preliminary governance models. It provides valuable insights into the technological and operational frameworks required to support CBDC adoption. However, the evolving nature of digital currencies and their governance necessitates ongoing research and practical experimentation. This study lays the groundwork for future exploration, highlighting the need for continuous adaptation and innovation in IT governance to ensure the successful integration of CBDCs into the global financial system. As central banks and financial institutions navigate this new terrain, the insights from this research will be crucial in shaping the future of digital currency governance and ensuring its alignment with broader financial stability and regulatory goals.