Legal analysis of central bank digital currency (CBDC) as a kind of money

Abstract

Technological advancements are reshaping society and transforming the financial system. The rise of digital currencies issued by private entities has been an alarm for central banks to explore a central bank digital currency (CBDC), a digital version of cash issued by the central bank. More than 90% of central banks worldwide are undertaking research on CBDC, including the Bank of England and Bank Indonesia, and some countries have already adopted it as legal tender. CBDC marks a significant milestone in the innovation of money that potentially reshapes the future of the financial system.

The issuance of CBDC as a new form of money must be carefully examined from various dimensions, including a legal perspective, especially if it were adopted into the financial system and made available for public use. Acknowledging the emergence of a digital form of central bank money and its potential adoption in the future, this thesis aims to present novel legal concepts and arguments in relation to CBDC, seeking to make a meaningful contribution to the legal field and support its implementation. Moreover, this thesis attempts to fill the gaps in the existing legal literature and research related to money, digital money and CBDC.

The focus of this thesis is mainly on private law, including property law, areas that remain largely unexplored in previous literature. This thesis employs a doctrinal legal research methodology, analysing legal sources and materials to develop a legal analysis of CBDC mainly from the perspective of English Law. Given that money has universal concepts and characteristics for discharging debts, such legal analysis will also serve as a comparative foundation for the eventual introduction of CBDC in Indonesia, particularly for retail payments.

This thesis argues that existing money principles and theories in the English legal system remain applicable to CBDC, meaning that the issuance and adoption of CBDC can still be accommodated under these principles and theories. However, refinement of the existing legislation would be needed to accommodate the nature of CBDC as a new kind of money.

Regarding the issuance of money, this thesis shows that the state has the authority to proclaim a thing as money, regardless of its materials. This authority also extends to CBDC, which is classified as state-issued money. CBDC can also serve the same functions as traditional money, such as banknotes and coins, and can be declared legal tender, especially when it is designed for retail payment. However, in order for the general public to use this kind of money to discharge debts, it would need to be conferred a legal tender status by the legislation.

To protect the rights of the CBDC holders, including their privacy, the central bank must govern the system and technology employed in CBDC. The finality of settlement in the transactions must also be guaranteed by the central bank. This settlement is essential to confirm that the transaction is final, unconditional and irreversible. From the perspective of property law, individuals holding CBDC would generally hold proprietary rights that include the right to payment on central bank money in some other form, enforceable directly against the central bank as the issuing party. They also have the right to services, enforceable against the distributing entities, such as commercial banks acting as intermediaries in the transaction.

Furthermore, the law must be capable of recognising and protecting the rights of the CBDC holders, especially when CBDCs are transferred from one party to another. In this context, the law must guarantee that the payee has the same proprietary rights as the payer had when the funds were under their control.