Core Focus: The fundamental distinction between token-based and account-based CBDCs, their respective features, and the implications for privacy, financial integrity, and user experience.

In-Depth Notes:
The access mechanism—whether a CBDC is token-based or account-based—is one of the most fundamental design choices, with profound implications for privacy, financial integrity, and the structure of the payment system. Both approaches have been explored in CBDC pilot programmes globally, and hybrid approaches combining elements of both are increasingly common .

Token-Based CBDC:
A token-based CBDC resembles physical cash in digital form. In this model, a digital token is held by the user, and ownership is transferred when the token is spent. The token itself, not the identity of the holder, is the focus of the transaction. Users have either direct or intermediated access to their tokens which are spent and recreated for each transaction . Token-based systems are typically associated with distributed ledger technology (DLT), though this is not a strict requirement. The key features include:

• Privacy: Token-based systems offer greater anonymity, as transactions are not linked to an identity. Transactions are recorded as movements of tokens, not as changes to account balances tied to individuals .

• Resilience: Token-based CBDCs can support offline payments more easily, as the token can be transferred directly between devices without requiring an internet connection.

• Double-Spending Risk: The primary technical challenge is preventing double-spending. A liability framework would be required to deal with this risk when both payer and payee are offline .

Account-Based CBDC:
An account-based CBDC is analogous to a traditional bank account, where each user has an account with a balance, and transactions involve debiting one account and crediting another. The identity of the account holder is central to the system. Account-based systems can be structured in different ways: (1) accounts are stored at Payment Interface Providers (PIPs) and settlements take place at the core ledger, or (2) a ledger-centric account-based system in which accounts are stored directly on the core ledger while PIPs provide access and additional service for end-users . Key features include:

• Traceability: Account-based systems are inherently traceable, as all transactions are linked to specific account holders. This facilitates AML/CFT compliance.

• Simplicity: Account-based systems are more familiar to users and easier to integrate with existing financial infrastructure.

• Security: Account-based systems can incorporate strong authentication mechanisms and fraud detection.

The Hybrid Approach:
Increasingly, jurisdictions are adopting hybrid models that combine token-based and account-based features. China’s e-CNY combines value-based, quasi-account-based, and account-based access mechanisms, with digital wallets segmented into multiple tiers based on Know-Your-Customer (KYC) requirements, enabling users to choose between wallets that offer greater anonymity but lower holding limits, and others that offer higher transaction capacity with stricter identity verification . This reflects the principle of “anonymity for small-value transactions and traceability for high-value ones” . Sweden’s e-krona pilot and The Bahamas’ Sand Dollar project have also explored different wallet structures offering simplified and potentially more anonymous access to CBDC for specific use cases .