✒ When a central bank digital currency-based monetary system is hacked, is it not just about what the central bank can do to reverse these transactions but also what and how to compensate the victims.
Option 1: suspend and reverse all transactions that have not yet escaped the system;
Option 2: offer direct compensation to victims for transactions that have escaped the system by printing new money i.e. economy-wide socialisation of the losses; and
Option 3: offer direct compensation with fully-funded central bank money i.e. institutional bail-in.
The cryptocurrency space has already had experience with such hacking episodes, leading to “monetary policy” level responses within their native systems. In the Bitfinex case in 2016 option 3 was adopted; in the DAO smart contract breach option 1 was adopted; in the most recent Poly Network episode, the institution initiated direct negotiation with the hackers, and convinced the hacker to return a big chunk of stolen funds.