Discussions on CBDCs (central bank digital currencies) give central banks the opportunity to examine the potential design of their future infrastructure. It is not necessary for central banks to rush to issue digital currencies to compete with cryptocurrencies. Rather, central banks, responsible for maintaining the stability of payments and settlements, must understand the possible impact of these technologies on their overall operations.
The marginal cost for central banks to issue such liabilities is low, since they can use the market’s underlying trust in them. And it may not be necessary to apply blockchain to these currencies, since central banks – as ledger keepers – are considered sufficiently trustworthy already.
Central banks initially questioned the motivation behind and possibility of issuing CBDCs, and there was little distinction between retail and wholesale variants. A retail CBDC would provide all individuals with access to a digital version of central bank fiat money, while wholesale CBDCs are limited to financial institutions for interbank settlements.
There are several policy concerns, mainly with regard to financial stability and the implications of widening access to central bank accounts. No major central bank intends to implement a retail CBDC in the near term. However, the debate about wholesale CBDCs has moved on from questions of feasibility to practical considerations.
A report from IBM Blockchain and OMFIF (Official Monetary and Financial Institutions Forum) focuses on the aspects considered during the development of wholesale CBDCs, which are certain to be implemented in the future: the specific variant of digital currencies that will be of most relevance for the central banking and regulatory community and all those who follow and do business with central banks worldwide.