Stakeholders and Their Conflicting Interests

CBDC STAKEHOLDER CATEGORIES

TIER 1: CORE STAKEHOLDERS (Direct role in CBDC)
├─ Central Banks
├─ Commercial Banks
├─ Governments/Legislators
├─ Citizens/Consumers
└─ Businesses/Merchants

TIER 2: ENABLING STAKEHOLDERS (Support CBDC ecosystem)
├─ Payment Service Providers
├─ Technology Vendors
├─ Fintech Companies
├─ Wallet Providers
└─ Agent Networks

TIER 3: INFLUENCING STAKEHOLDERS (Shape context)
├─ Privacy Advocates
├─ Financial Regulators (non-central bank)
├─ International Organizations
├─ Media and Analysts
└─ Academic Researchers
```

Not all stakeholders have equal influence:

STAKEHOLDER POWER/INTEREST MATRIX

HIGH INTEREST
                         │
    MANAGE CLOSELY       │    KEY PLAYERS
    (Keep satisfied)     │    (Engage deeply)
                         │
    - Payment providers  │    - Central banks
    - Technology vendors │    - Commercial banks
    - Merchants          │    - Governments
                         │    - Privacy advocates
    ─────────────────────┼─────────────────────
                         │
    MONITOR              │    KEEP INFORMED
    (Minimal effort)     │    (Regular updates)
                         │
    - International orgs │    - Citizens
    - Academics          │    - Media
    - Distant countries  │    - Consumer groups
                         │
                    LOW INTEREST

LOW POWER ───────────┼─────────── HIGH POWER

- Central banks: Design and issue CBDC
- Commercial banks: Distribution and deposit competition
- Governments: Legislative authority and policy goals
- Privacy advocates: Public opinion influence

- Large tech vendors: Can make or break implementation
- Major PSPs: Distribution channel
- Banking regulators: Compliance authority

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Central banks are the issuers and typically the architects of CBDCs. Understanding their interests explains many design choices.

CENTRAL BANK INTERESTS

PRIMARY INTERESTS:

1. MAINTAIN MONETARY SOVEREIGNTY

2. PRESERVE FINANCIAL STABILITY

3. ENSURE PAYMENT SYSTEM INTEGRITY

4. MODERNIZE INFRASTRUCTURE

SECONDARY INTERESTS:

1. INSTITUTIONAL RELEVANCE

2. OPERATIONAL SUSTAINABILITY

CENTRAL BANK CONCERNS

→ Leads to: Two-tier model preference

→ Leads to: Holding limits, no interest

→ Leads to: Slow, cautious development

→ Leads to: Independence protection, design limits

→ Leads to: Intermediary liability structure
```

CENTRAL BANK INTEREST → DESIGN CHOICE

"We want control, not operational burden"
→ Two-tier model: Banks operate customer-facing

"We fear bank disintermediation"
→ Holding limits, no interest on CBDC

"We want to minimize reputational risk"
→ Slow rollout, extensive pilots, conservative scope

"We want payment system integrity"
→ High security requirements, regulated intermediaries

"We want monetary sovereignty"
→ CBDC as alternative to private digital money

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Commercial banks are potentially CBDC's biggest losers—or beneficiaries, depending on design. Their response significantly shapes outcomes.

COMMERCIAL BANK INTERESTS

PRIMARY INTERESTS:

1. PRESERVE DEPOSIT BASE

2. MAINTAIN CUSTOMER RELATIONSHIPS

3. PROTECT PAYMENT REVENUES

4. ENSURE FAIR COMPETITION

SECONDARY INTERESTS:

1. NEW BUSINESS OPPORTUNITIES

2. REGULATORY CLARITY

COMMERCIAL BANK CONCERNS

Scenario:

• CBDC is risk-free (central bank liability)
• Bank deposits have counterparty risk
• Rational customers shift to CBDC
• Banks lose funding → can't lend → credit crunch

Reality:

• Particularly acute during crises
• "One click" bank run potential
• Existential threat to fractional reserve model

If direct model:

• Banks lose customer relationship
• Banks become back-office
• Revenue streams eliminated

Even in two-tier:

• Reduced customer dependency
• Price pressure on services

If non-banks can distribute:

• Banks' regulatory burden disadvantage
• Fintechs cherry-pick profitable services
• Banks left with costly compliance

Banks have invested in:

• Card systems
• Real-time payments
• Digital banking platforms
• CBDC could bypass all of this

COMMERCIAL BANK STRATEGIES

BANK INFLUENCE:
Banks have significant political power
Two-tier model is partly bank lobbying success
Holding limits protect bank deposits
Design often reflects bank interests
```

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Governments (distinct from independent central banks) have their own CBDC interests.

GOVERNMENT INTERESTS

FISCAL/ADMINISTRATIVE INTERESTS:

1. EFFICIENT BENEFIT DISTRIBUTION

2. TAX COMPLIANCE

3. REDUCED CASH COSTS

POLICY INTERESTS:

1. FINANCIAL INCLUSION

2. MONETARY POLICY TOOLS

3. SURVEILLANCE CAPABILITY

STRATEGIC INTERESTS:

1. TECHNOLOGICAL LEADERSHIP

2. STRATEGIC AUTONOMY

GOVERNMENT CONCERNS

Reality in democracies:

• Privacy concerns resonate
• "Government tracking spending" narrative
• Can become election issue
• See: Canada survey results

Scenarios:

• Technical problems
• Security breach
• Low adoption embarrassment
• Political opponent ammunition

Banks are politically connected

• Credit contraction concerns
• Job losses in financial sector
• Economic stability worries

Cross-border implications:

• Capital flow changes
• Currency competition
• Sanctions architecture

GOVERNMENT-CENTRAL BANK TENSIONS

INDEPENDENCE QUESTION:
Central banks are (supposed to be) independent
Governments may want to direct CBDC policy
Tension inherent in the relationship

EXAMPLE TENSIONS:

• Government: "We need transaction monitoring for crime"

• Central bank: "That's not our mandate; it damages trust"

• Government: "Stimulus should expire to boost spending"

• Central bank: "That undermines money's store-of-value function"

• Government: "Launch before next election"

• Central bank: "We need more testing time"

• Legislation defining CBDC parameters

• Governance structures limiting government control

• Central bank asserting independence

• Political negotiation

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Citizens are the ultimate users but often the least powerful stakeholders in design.

CITIZEN INTERESTS

PRACTICAL INTERESTS:

1. CONVENIENCE

2. LOW/NO COST

3. SECURITY

4. ACCESS

VALUES-BASED INTERESTS:

1. PRIVACY

2. CONTROL

3. CHOICE

CITIZEN CONCERNS

Specific fears:

• Purchase profiling
• Political targeting
• Social scoring (China example)
• Loss of financial privacy

Specific fears:

• Spending restrictions
• Account freezing
• Expiring money
• Programmable limitations

Specific fears:

• No alternative to digital
• Exclusion of those without technology
• Complete system dependency
• No off-grid option

Specific fears:

• Cannot access money
• Technical failures
• Cyber attacks
• No backup

Specific fears:

• Inflation
• Negative interest rates
• Currency manipulation
• Confiscation

HOW CITIZENS INFLUENCE CBDC

DIRECT INFLUENCE:

• Digital Euro consultation (8,000+ responses)

• Privacy was #1 concern

• Influenced ECB design priorities

• Canada: 90% privacy concerns → research paused

• Various countries track public opinion

• CBDC can become political issue

• Representatives respond to constituent concerns

• See: US political opposition

INDIRECT INFLUENCE:

• Citizens can refuse to use CBDC

• Low adoption = failure

• Bahamas, Nigeria experience

• Move to alternatives (crypto, foreign currency)

• Cash hoarding if CBDC feared

• Capital flight

CITIZEN POWER LIMITATIONS:

• Banks have lobbyists; citizens don't

• Government interests often prevail

• Privacy concerns noted but not fully addressed

• Citizens often consulted after key decisions

• Design fundamentals already set

• Modifications at margins only

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The most important CBDC design tensions emerge from stakeholder conflicts.

CORE STAKEHOLDER CONFLICTS

CONFLICT 1: PRIVACY vs. COMPLIANCE
─────────────────────────────────────
Citizens want: Anonymous transactions
Governments want: Transaction visibility
Regulators want: AML/KYC compliance
Banks want: Customer data

TENSION: Fundamentally opposed; requires trade-off
TYPICAL RESOLUTION: Tiered privacy (limited anonymity for small amounts)

CONFLICT 2: BANK PROTECTION vs. CBDC UTILITY
─────────────────────────────────────────────
Banks want: Protected deposits, holding limits
Citizens want: Full utility, no arbitrary limits
Central banks want: Financial stability

TENSION: Limits reduce utility but protect banks
TYPICAL RESOLUTION: Significant limits (€3,000 Digital Euro)

CONFLICT 3: INNOVATION vs. STABILITY
─────────────────────────────────────
Government/Fintechs want: Advanced features, programmability
Central banks want: Conservative, proven approaches
Banks want: Gradual change they can adapt to

TENSION: Innovation creates risk; stability limits value
TYPICAL RESOLUTION: Slow rollouts, limited initial features

CONFLICT 4: CONTROL vs. ADOPTION
────────────────────────────────
Governments want: Policy tools, surveillance capability
Citizens want: Privacy, freedom from control
Central banks want: Monetary policy effectiveness

TENSION: Control features kill adoption; adoption requires trust
TYPICAL RESOLUTION: Control features limited or hidden

CONFLICT 5: ACCESS vs. SECURITY
───────────────────────────────
Inclusion advocates want: Minimal barriers
Security/Compliance want: Strong KYC
Banks want: Clear liability frameworks

TENSION: Security requirements exclude vulnerable populations
TYPICAL RESOLUTION: Tiered access with trade-offs
```

HOW CBDC CONFLICTS GET RESOLVED

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STAKEHOLDER ANALYSIS PROCESS

STAKEHOLDER ANALYSIS: DIGITAL EURO

STAKEHOLDER: European Central Bank
Interest: Maintain central bank relevance, preserve public money access
Power: High (issuer, designer)
Position: Strong supporter with privacy emphasis

STAKEHOLDER: European Commercial Banks
Interest: Protect deposits, ensure distribution role
Power: High (political influence, implementation role)
Position: Reluctant acceptance with conditions (limits, distribution)

STAKEHOLDER: European Commission/Parliament
Interest: Strategic autonomy, innovation, political benefits
Power: High (legislative authority)
Position: Supportive with oversight requirements

STAKEHOLDER: European Citizens
Interest: Privacy, convenience, cost
Power: Medium (consultation, adoption choice)
Position: Mixed (convenience interest, privacy concerns)

STAKEHOLDER: Privacy Advocates
Interest: Cash-like anonymity
Power: Medium (public influence, legal challenges)
Position: Conditional support (strong privacy requirements)

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✅ Multiple stakeholders have legitimate but conflicting interests—there's no design that satisfies everyone.

✅ Power asymmetries shape outcomes—banks and governments typically prevail over citizen preferences.

✅ Stakeholder conflicts explain design compromises—limits, tiering, and conservative features reflect conflict resolution.

✅ Citizen concerns can halt projects—Canada's pause and US halt show public opinion matters.

⚠️ Whether current stakeholder dynamics will persist—crises or political shifts could change power balances.

⚠️ How conflicts will resolve in specific countries—local factors matter enormously.

⚠️ Whether adoption will force stakeholder reconsideration—if CBDCs fail, designs may have to change.

📌 Assuming technical merit determines design—politics and stakeholder interests are often more decisive.

📌 Ignoring less visible stakeholders—technology vendors, for example, can significantly shape outcomes.

📌 Expecting citizen interests to prevail—they usually don't, despite consultation processes.

CBDC design is political negotiation dressed in technical language. Understanding stakeholder interests explains why CBDCs often emerge as compromised, limited products that fully satisfy no one. The two-tier model, holding limits, and privacy tiering aren't technical optimums—they're political settlements. Any analysis of CBDC prospects must account for who wins and who loses in the design process.

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Assignment: Conduct a comprehensive stakeholder analysis for a specific CBDC project, mapping interests, power, positions, and predicting outcomes.

Requirements:

Part 1: Select a CBDC
Choose one: Digital Euro, India e-Rupee, Brazil DREX, UK Digital Pound, or another advanced project.

Part 2: Stakeholder Mapping (2 pages)

• Stakeholder name and category
• Primary interests (what they want from CBDC)
• Primary concerns (what they fear)
• Power level (High/Medium/Low with justification)
• Position (Strong Supporter / Supporter / Neutral / Opponent / Strong Opponent)
• Key issues for this stakeholder

Part 3: Conflict Analysis (1 page)

• Which stakeholders are in conflict?
• What is the nature of the conflict?
• Is resolution possible? How?
• Who is likely to prevail?

Part 4: Outcome Prediction (1 page)

• What design features will likely survive stakeholder conflicts?

• What features will likely be compromised or eliminated?

• What is the most likely final design?

• What stakeholder dynamics could change outcomes?

• Completeness of stakeholder mapping (30%)

• Insight in conflict analysis (30%)

• Reasonableness of predictions (25%)

• Evidence and reasoning quality (15%)

Time Investment: 3-4 hours
Value: Stakeholder analysis is a practical skill applicable to any CBDC evaluation.

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1. Central Bank Interests Question:

Why do most central banks prefer the two-tier intermediated distribution model?

A) It is technically superior to direct models
B) It avoids operational burden while preserving central bank control over issuance
C) It is required by international law
D) Citizens prefer dealing with banks rather than central banks

Correct Answer: B
Explanation: Central banks want to maintain monetary sovereignty and control issuance but don't want to become retail service providers. The two-tier model lets them issue CBDC while delegating customer service, KYC, wallets, and support to banks—leveraging existing infrastructure and avoiding operational burden. Technical superiority (A) isn't established. There's no international law requirement (C). Citizen preference (D) isn't the driving factor.

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2. Bank Interests Question:

What is the primary reason commercial banks advocate for CBDC holding limits?

A) To ensure technical system stability
B) To protect their deposit base from flight to risk-free central bank money
C) To simplify regulatory compliance
D) To reduce central bank operational costs

Correct Answer: B
Explanation: Banks fund their lending from deposits. If citizens can hold unlimited CBDC (which is risk-free central bank money), rational users might shift deposits from risky bank accounts to safe CBDC—especially during crises. This would devastate bank funding. Holding limits (like €3,000 for Digital Euro) prevent CBDC from becoming a savings vehicle that competes with deposits. System stability (A), compliance (C), and central bank costs (D) aren't the primary drivers.

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3. Stakeholder Conflict Question:

The conflict between "citizen privacy interests" and "government compliance interests" in CBDC design is typically resolved through:

A) Giving citizens complete anonymity
B) Giving governments complete visibility
C) Tiered approaches where small transactions have more privacy than large ones
D) Leaving the question unresolved indefinitely

Correct Answer: C
Explanation: Complete anonymity (A) is unacceptable to regulators (AML/CFT requirements). Complete visibility (B) is unacceptable to citizens (privacy concerns). The typical resolution is tiered privacy: small transactions (e.g., under €50-100) can be more anonymous, while larger transactions require identification. This is a political compromise, not a perfect solution. D is incorrect because projects can't launch without addressing this.

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4. Citizen Power Question:

How did citizen opposition most directly influence CBDC development in Canada?

A) Citizens voted against CBDC in a national referendum
B) Survey results showing 90% privacy concerns led to research suspension
C) Mass protests forced central bank to abandon the project
D) Citizens moved their money abroad, causing a banking crisis

Correct Answer: B
Explanation: Bank of Canada conducted a public consultation. The results showed 90% of respondents had privacy concerns, and 92% were unwilling to use a digital Canadian dollar. This public opposition contributed to the suspension of CBDC research in 2024. There was no referendum (A), no mass protests (C), and no banking crisis from capital flight (D). This example shows that survey/consultation feedback can influence outcomes, though typically at late stages.

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5. Conflict Resolution Question:

When stakeholder interests conflict in CBDC design, which pattern MOST commonly determines the outcome?

A) Technical experts make purely objective decisions
B) Citizen preferences are prioritized in democracies
C) More powerful stakeholders (banks, governments) typically prevail
D) International organizations impose uniform solutions

Correct Answer: C
Explanation: CBDC design reflects power dynamics. Banks have lobbying power and get two-tier distribution and holding limits. Governments have legislative authority and get more visibility than citizens want. Citizens have some influence through adoption choices and consultations, but their preferences typically don't prevail in final design. Technical experts (A) advise but don't decide politics. Citizen priority (B) is the ideal, not the reality. International organizations (D) have limited authority over sovereign currency decisions.

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For Next Lesson:
In Lesson 6, we examine the banking system impact question in depth—how CBDC could affect bank deposits, lending, and financial stability, and what design choices attempt to mitigate these risks.

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End of Lesson 5

Total words: ~5,600
Estimated completion time: 55 minutes reading + 3-4 hours for deliverable

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Course 58: CBDC Architecture & Design
Lesson 5 of 20
XRP Academy - The Khan Academy of Digital Finance