The internet as we know it today was developed over a thirtyyear period between 1969 and 1999. Its original architects, largely a group of academics and engineers, supported with funding from the US Defense Advanced Research Projects Agency, faced several challenges that also arise in the context of CBDCs. First, already in the internet’s nascent phase, implementations of local networks, often small and disconnected, started to pop up on university campuses and larger corporations. Second, the technology used varied widely between these nascent implementations, making it impossible for information to traverse the various networks, even if these were connected to one another. Third, competing commercial interests between internet service providers added governance challenges to the ensuing technological challenges. Two components are instrumental in ensuring the extraordinary degree of interconnectivity and the lasting success of the internet: packet switching and common messaging standards. Packet switching is a method of information transmission that separates the content and header of a message. The header contains information that the network infrastructure uses to decide what to do with the message. This design makes it possible to provide faulttolerant redundant routing of messages from the source to the destination and is at the heart of the internet’s resilience. Common messaging standards were developed in the form of the TCP/IP protocol, first published in 1974 by Vint Cerf and Bob Kahn. This suite of protocols, ensures that two different computers connected to the internet have a way of finding one another and exchanging application-level information. Without the TCP/IP protocol, it would be impossible to develop applications that run on different kinds of computers because no two computers would be able to communicate. Taken together, packet switching and common messaging standards also underpin a fundamental dogma of the early internet pioneers: that all messages should be treated equally by the infrastructure- in other words, the internet is neutral. These two principles also prevent monopolization of the internet, which was a key concern during a time most longdistance phone lines were owned by a single provider, AT&T. The two principles at the heart of the intemet’s technological and commercial success can readily be translated to central bank digital currencies. To implement “token switching” as an equivalent of packet switching, policy-makers need to ensure that CBDCs are issued on technology that guarantees funds are processed domestically and cross-border irrespective of the content of the transaction. All transactions must be routed to their destination within a network, or across different networks by the network infrastructure simply by trying to find the most efficient path to the destination. Furthermore, it is crucial to develop a “value protocol” as an equivalent of the internet protocol. This value protocol needs to set common standards for the processing of transactions across a broad range of technology and governance choices. The new ISO 20022 standard is quickly becoming a contender to be the value protocol of future payment systems. Today, a fragmentation of the payment landscape into CBDCs, stablecoins and private crypto assets is already observed. Interoperability via token switching and common messaging standards defined in the value protocol could ensure “money neutrality” and prevent further drifting into a world of walled gardens, i.e. isolated and enclosed ecosystems based on a specific stablecoin or CBDC which limit competition, disempower users and further monopolization and centralization. CA S E S T UDY 3 Interoperability of the internet Central Bank Digital Currency Global Interoperability Principles 27
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