I. Introduction

Central Bank Digital Currencies (CBDCs) represent a digital form of central bank money, distinct from the digital balances held by commercial banks with central bank ¹. While individuals and businesses have long utilized digital forms of money, a CBDC would uniquely be a direct liability of the central bank, offering a potentially safer and more liquid form of digital currency for public use ¹. The emergence of CBDCs has garnered significant global attention due to their potential to enhance payment systems, foster financial innovation, and improve financial inclusion, as noted by the Bank for International Settlements (BIS) ². However, the implementation and particularly the cross-border usability of CBDCs are intrinsically linked to navigating a complex web of jurisdictional considerations ². Differing legal frameworks across nations pose substantial challenges to achieving seamless interoperability and can introduce considerable uncertainty in the application of laws to CBDC transactions.

Focus of the Paper – This research paper will analyze the key jurisdictional issues surrounding CBDCs, with a specific focus on the work undertaken by the BIS, the Committee on Payments and Market Infrastructures (CPMI), and the G20, including its Building Block 4 (BB4), to address these complexities.

II. Foundational Legal Considerations for CBDCs

A fundamental hurdle in the deployment of CBDCs lies in their legal classification across various jurisdictions ². The BIS has provided that existing legal frameworks governing money, payments, and central banking were not originally conceived with digital central bank money for the public in mind ². Consequently, jurisdictions may need to consider establishing a new legal category or asset specifically for retail CBDCs (rCBDCs), complete with a tailored monetary and private law framework ². The absence of a universally accepted legal classification creates immediate jurisdictional ambiguities. For instance, if one nation defines its CBDC as a legal tender with specific rights and obligations, while another categorizes a foreign CBDC as a digital asset subject to different regulations, the legal treatment of cross-border transactions and the resolution of potential disputes become significantly complicated. This divergence can impact aspects ranging from taxation and accounting standards to the application of bankruptcy laws. The BIS has further elaborated on the question of whether CBDCs fit within existing monetary asset classes such as cash, deposits, or e-money, or if they constitute an entirely novel form of money ². Classifying CBDCs under pre-existing categories would automatically subject them to the established legal rules governing those classes, which may not be entirely suitable for the unique characteristics of digital central bank money ².

Beyond classification, the establishment of a CBDC ecosystem necessitates a clear legal framework that unequivocally defines the rights, obligations, and potential liabilities of all participating stakeholders ². This framework plays a crucial role in appropriately allocating the various risks that could arise within the system to the party best positioned to manage or mitigate them ². In a domestic context, this involves considerations such as the central bank’s liability for system failures, the responsibilities of intermediaries providing access to the CBDC, and the rights of end-users. However, these considerations become considerably more intricate in cross-border scenarios. For example, if a user in country A holds a CBDC issued by the central bank of country B through an intermediary operating in country A, the question of liability in the event of a system malfunction becomes unclear. Would the laws of country A, country B, or potentially a third jurisdiction govern the dispute? The legal framework must address such scenarios to provide clarity and legal certainty for all participants. Differing allocations of responsibility across jurisdictions inherently lead to potential conflicts of law, further underscoring the need for international coordination or the development of specific rules to govern cross-border CBDC usage.

III. Cross-Border Jurisdictional Issues with CBDCs

Determining the applicable law for transactions involving CBDCs across borders presents a significant set of jurisdictional challenges ². The BIS has pointed out that standard conflict of laws rules, which typically govern legal disputes with an international element, may not be well-suited for digital assets like CBDCs ². Traditional approaches often rely on concepts such as lex monetae (the law of the issuing currency), lex contractus (the law of the contract), and lex situs (the law of where the property is situated) ². However, the digital nature of CBDCs, particularly when based on distributed ledger technology (DLT), can make it exceptionally difficult to ascertain the situs of the asset ². This ambiguity complicates the application of established legal principles. Several potential approaches are being considered to address these uncertainties. One involves focusing on the intermediary facilitating the cross-border transaction, with the applicable law potentially specified in agreements between intermediaries and end-users or determined by the “Place of the Relevant Intermediary Approach” (PRIMA) ². Another approach suggests specifying the governing law directly within the CBDC system itself ². Furthermore, there is growing recognition of the need for jurisdictions to develop special rules or enter into bilateral or multilateral agreements to provide greater legal certainty in cross-border CBDC disputes ². The very essence of a digital currency, lacking a tangible physical location, challenges the conventional legal frameworks designed for physical assets, necessitating innovative solutions to determine jurisdiction in case of disputes. The Hague Conference on Private International Law (HCCH) has also recognized this challenge and has initiated a project to study the applicable law and jurisdiction issues arising from the cross-border use and transfers of CBDCs ⁴.

The regulation and supervision of CBDC activities that extend beyond national borders introduce another layer of jurisdictional complexity ². When a jurisdiction permits non-resident access to its CBDC or when intermediaries in one country provide services related to a CBDC issued in another, questions arise regarding which regulatory rules should apply and how these rules can be effectively enforced ². For instance, if a central bank allows individuals or entities in a foreign country to hold its CBDC, it needs to consider how it will monitor these holdings for compliance with anti-money laundering (AML) and counter-terrorism financing (CFT) regulations. Similarly, if a financial institution in one jurisdiction offers wallets or payment services for a CBDC issued in another, it becomes necessary to determine which jurisdiction’s regulatory framework should govern these activities. This often necessitates the establishment of cooperation agreements between supervisory authorities in the relevant jurisdictions to avoid regulatory arbitrage and ensure comprehensive oversight ². Without such international collaboration, there is a risk of inconsistent application of rules, potentially undermining the integrity and stability of the CBDC system.

Achieving seamless cross-border payments with CBDCs also hinges on the interoperability of different CBDC systems ². The BIS has categorized cross-border CBDC exchange models into compatible systems, interlinked systems, and a single system, each presenting distinct legal challenges ². Compatible systems might involve different CBDCs operating independently but adhering to common standards for exchange. Interlinked systems could involve formal agreements and technical connections between different CBDC platforms. A single system would entail a unified platform accessible across multiple jurisdictions. Each of these models raises unique legal questions concerning settlement finality, the determination of applicable law at each stage of the transaction, and the allocation of operational risks. The Financial Stability Board (FSB) has also acknowledged the importance of interlinking payment systems and incorporating an international dimension into the design of CBDC systems.⁷ Simply ensuring technical compatibility between different CBDC systems is insufficient; robust legal frameworks are essential to ensure that cross-border transactions are legally sound, enforceable, and provide clarity on settlement procedures and liability in the event of any disruptions.

IV. The Role of International Bodies and Initiatives

The Bank for International Settlements (BIS) has been at the forefront of analyzing the legal dimensions of retail CBDCs, notably through its report titled “Legal aspects of retail CBDCs” ². This report identifies four key areas of focus: the legal classification of rCBDC, the obligations and liabilities of participants in the rCBDC ecosystem, privacy and financial crime considerations, and cross-border issues ². The BIS emphasizes that significant legal work is required in each jurisdiction considering the issuance of a CBDC to address the wide array of legal issues that arise ². Furthermore, a group of seven central banks, in collaboration with the BIS, has been actively exploring selected legal and system design aspects of retail CBDCs, underscoring the collaborative effort to understand and address these complexities ³.

The G20, with the support of the Financial Stability Board (FSB) and other international organizations, has launched the Roadmap for Enhancing Cross-Border Payments ⁷. This initiative aims to make cross-border payments faster, cheaper, more accessible, and more transparent while maintaining their safety and security ⁷. The FSB plays a crucial role in monitoring the progress made against the Roadmap’s priority actions, which include tackling frictions arising from inconsistent legal, regulatory, and supervisory frameworks ⁸. The G20 has also endorsed quantitative global targets for addressing the challenges in cross-border payments across various market segments ⁸. This high-level policy focus from the G20 provides a significant impetus for addressing the jurisdictional challenges associated with CBDCs, recognizing that overcoming legal and regulatory hurdles is essential for improving international payments.

The Committee on Payments and Market Infrastructures (CPMI) has also been actively engaged in work related to cross-border payments and the potential role of CBDCs ⁹. The CPMI has convened a “community of practice” to facilitate the exchange of information and experiences among interested central banks on the development and upgrading of their payment systems, with a specific focus on incorporating an international dimension into fast payment systems (FPS) and CBDC systems ⁷. Additionally, the CPMI has considered the implications of using stablecoin arrangements for cross-border payments, which also touches upon jurisdictional aspects related to regulation, supervision, and oversight ⁹.

Building Block 4 (BB4) of the G20 cross-border payments programme specifically targets the alignment of regulatory, supervisory, and oversight frameworks across different jurisdictions ⁹. This alignment is considered critical for facilitating efficient and safe cross-border payments, including those potentially involving CBDCs. Differing regulatory approaches can create significant obstacles to interoperability and can increase the costs and complexities of cross-border transactions. By aiming for greater harmonization in these areas, BB4 directly addresses some of the core jurisdictional challenges that need to be overcome for the successful implementation and cross-border use of CBDCs.

V. Perspectives from National Central Banks

The US Federal Reserve has adopted a cautious stance regarding the issuance of a CBDC, emphasizing that it would only proceed with an authorizing law from Congress ¹. The Fed has been actively considering the implications of a potential US CBDC for international payments and the role of the dollar, including the legislative changes that might be necessary to allow non-resident access ¹¹. Interoperability with payment systems in other jurisdictions is another key consideration ¹¹. The Federal Reserve has also highlighted the importance of privacy standards and robust AML policies in the context of cross-border CBDC usage, noting that differences in these areas across jurisdictions can complicate automation and slow down payments ¹¹.

The European Central Bank (ECB) has been exploring the possibility of issuing a retail CBDC and has analyzed its potential impact on the financial system ¹². The ECB has considered the legal tender status and convertibility of a digital euro ¹². A significant concern for the ECB has been the potential for bank disintermediation and the need to manage financial stability risks associated with the introduction of a CBDC ¹³.

The Bank of England (BoE) has been actively researching the potential for a digital pound, emphasizing that it would coexist with physical cash and be backed by the government ¹⁴. The BoE has placed a strong emphasis on user privacy and data protection in its considerations ¹⁴. To explore the practical and technological challenges of a UK CBDC, the BoE has established taskforces and engagement forums involving various stakeholders ¹⁵.

Table 1: Summary of Key Legal and Jurisdictional Considerations by Major Central Banks

Central Bank	Legal Classification Concerns	Cross-Border Access Considerations	Interoperability Focus	Privacy/AML Concerns	Key Jurisdictional Challenges Highlighted
US Federal Reserve	Need for authorizing law; fitting into existing legal categories.	Legislative changes required for non-resident access.	Technical coordination with foreign entities.	Balancing privacy protection with identity verification for AML/CFT compliance.	Differences in data sharing, privacy protections, and due diligence thresholds across jurisdictions.
European Central Bank	Legal tender status and convertibility.	Not explicitly detailed in the provided snippets.	Not explicitly detailed in the provided snippets.	Not explicitly detailed in the provided snippets.	Preventing bank disintermediation and managing financial stability risks.
Bank of England	Digital form of banknotes, government-backed.	Not explicitly detailed in the provided snippets.	Potential for incorporating new technologies for payments.	Strong emphasis on user privacy and data protection.	Ensuring public trust and preventing government control over spending.

VI. Efforts by International Legal Organizations

The Hague Conference on Private International Law (HCCH) has launched a dedicated project on Central Bank Digital Currencies (CBDCs Project) to address the private international law aspects of their cross-border use ⁴. Recognizing that the unique nature of CBDCs may challenge the application of traditional private international law rules, the HCCH has established an Experts’ Group ⁴. The mandate of this group is to study the applicable law and jurisdiction issues that arise from the cross-border use and transfers of CBDCs ⁴. The HCCH has undertaken exploratory work, including hosting colloquiums and preparing preliminary documents, to better understand these challenges ⁴. The Experts’ Group is specifically examining issues such as the relevant connecting factors for determining applicable law, the role of intermediaries in cross-border CBDC transactions, the legal characterization of CBDCs, their recognition as legal tender in foreign jurisdictions, and their use as a means of payment across borders ¹⁶. The HCCH’s involvement underscores the critical role of private international law in resolving disputes between private parties engaged in cross-border CBDC transactions, particularly concerning the applicable legal framework and the jurisdiction of relevant courts.

While the provided research material does not explicitly detail the United Nations Commission on International Trade Law’s (UNCITRAL) specific work on the jurisdictional aspects of CBDCs, UNCITRAL has undertaken broader work on legal frameworks for the digital economy ¹⁸. This includes examining legal issues related to digital assets, online platforms, and distributed ledger technologies, which are relevant to the underlying technology of many CBDC proposals. It is plausible that UNCITRAL may play a more direct role in addressing the international trade law implications of CBDCs in the future.

VII. Potential Conflicts of Law and Enforcement Challenges

The issuance and use of CBDCs across different jurisdictions inherently create the potential for conflicts of law ². These conflicts can arise from differing legal classifications of CBDCs, where one jurisdiction might treat it as currency while another views it as a digital asset ⁶. Conflicts can also emerge from differing interpretations of contractual obligations in cross-border CBDC transactions and the varying status of CBDCs as legal tender in different countries ⁶. Furthermore, discrepancies in privacy regulations and AML/CFT requirements across jurisdictions can lead to significant conflicts when attempting to facilitate cross-border CBDC usage ². For instance, a CBDC designed with a high degree of anonymity in one jurisdiction might conflict with the stringent AML requirements of another, hindering its cross-border acceptance.

Enforcement of regulations and legal judgments in the context of cross-border CBDC usage presents another set of challenges ⁶. Enforcing regulations against non-resident users or intermediaries operating in different legal systems can be particularly difficult. Similarly, the recognition and enforcement of judgments related to CBDC disputes across borders can be complex, especially if a judgment originates from a jurisdiction that prohibits or has a different legal treatment of CBDCs ⁶. The HCCH’s work on the recognition and enforcement of judgments in the context of digital assets, including CBDCs, aims to address these challenges, but significant legal hurdles remain in ensuring effective cross-border enforcement. The very nature of digital transactions occurring across borders complicates the identification of responsible parties, the determination of the appropriate jurisdiction for legal action, and the subsequent enforcement of any resulting judgments.

VIII. Existing or Proposed International Frameworks and Collaborations

While a comprehensive international legal framework specifically for CBDCs is still in its nascent stages, various international bodies are actively engaged in efforts to address the associated jurisdictional issues ². The BIS serves as a crucial platform for dialogue and research among central banks, facilitating the sharing of knowledge and the exploration of common approaches to CBDC development and regulation ³. The G20’s Roadmap for Enhancing Cross-Border Payments, with the coordination efforts of the FSB, provides a high-level policy framework for improving international payments, which inherently includes considerations for the role and regulation of CBDCs ⁷. The HCCH’s dedicated project on the private international law aspects of CBDCs represents a significant step towards developing legal frameworks that can govern cross-border interactions involving these digital currencies ⁴. The CPMI’s work on promoting interoperability and exploring new multilateral arrangements for payments also contributes to addressing the technical and potentially legal aspects of cross-border CBDC usage ⁷. These collective efforts, though still evolving, signify a growing international recognition of the need for collaboration to navigate the jurisdictional complexities of CBDCs.

IX. Conclusion and Way Forward

The jurisdictional issues surrounding CBDCs, particularly in their cross-border context, are multifaceted and demand careful consideration. The novel nature of these digital currencies and their potential for global use introduce complexities that existing legal frameworks were not designed to handle. Key challenges include the lack of a uniform legal classification, the complexities of determining applicable law in cross-border transactions, the need for international cooperation in regulation and supervision, and the legal hurdles to achieving interoperability between different CBDC systems.

The ongoing work of international organizations such as the BIS, G20/FSB, CPMI, and HCCH is crucial in addressing these challenges. Continued dialogue and information sharing among central banks, legal experts, and policymakers are essential. The development of model legal provisions or guidelines for CBDC issuance and cross-border applicability could provide a foundation for greater harmonization. Exploring multilateral agreements on the recognition and enforcement of CBDC-related legal claims is another important avenue. Further research into the application of private international law principles to digital currencies, as undertaken by the HCCH, will be vital in resolving cross-border disputes.

In conclusion, the legal landscape surrounding CBDCs is still in a formative stage, particularly concerning their cross-border implications. Continued international attention and collaboration on jurisdictional issues are paramount to ensure the safe, efficient, and legally sound implementation of CBDCs in an increasingly interconnected global financial system.

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