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Wholesale, not retail, CBDCs more likely to be issued in near-term - BIS

There has been a sharp uptick in experiments and pilots with wholesale central bank digital currencies over the last year, according to the Bank for International Settlements.

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Wholesale, not retail, CBDCs more likely to be issued in near-term - BIS

Editorial

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In recent years, almost all central banks have begun exploring CBDCs - 94% of 86 surveyed by BIS in late 2023.

Now, there is a shift away from theoretical research on potential implications towards real-life experiments to test the feasibility and desirability of specific design features. More than half of the central banks quizzed by BIS are working on proofs of concept, and one out of three is running a pilot.

And, while much of the debate around the issue has focused on retail CBDCs, the banks are now shifting focus to wholesale, where there has been a noticable uptick in experiments.

BIS predicts the "likelihood that central banks will issue a CBDC within the next six years is now generally greater for wholesale than for retail CBDC".

As for designs, many CBDC features are still undecided. Yet, interoperability and programmability are often considered for wholesale CBDCs, while for retail CBDCs, more than half of central banks are considering holding limits, interoperability, offline options and zero remuneration.

On crypto, the survey indicates that, to date, stablecoins are rarely used for payments outside the crypto ecosystem. Moreover, about two out of three responding jurisdictions have or are working on a framework to regulate stablecoins and other cryptoassets.

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Comments: (1)

Jeremy Light

Jeremy Light Co-founder at Fourdotzero

It is inevitable that central banks will shift their focus to wholesale CBDCs - there are some genuine benefits and innovations in replacing/complementing RTGSs for transacting in reserves.

Unlike retail CBDCs where central banks have no expertise in retail payments and face huge public resistance on privacy and censorship concerns that look impossible to address.

However, stablecoins are likely to be hugely beneficial drivers of innovation in retail and commercial payments. Although stablecoins use secure blockchains, in reality they are very different to crypto, as they are simply tokenised fiat currency and can be used as a means of exchange just like paper or electronic fiat currency.

The BIS is a fan of asset tokenisation (https://www.bis.org/speeches/sp240209.htm) although seems to suggest that price fluctuations in stablecoins rule them out as a suitable way to tokenise fiat currency. However, e-money is a form of tokenised fiat currency and has been in successful widespread use for decades - designed properly, stablecoins have huge potential.

It is also a misconception that stablecoins are rarely used for payments. It is true their genesis and major use is in the trading of non-fiat cryptocurrencies on crypto-exchanges, but their use in payments is growing and this will continue in leaps and bounds. Checkout Circle's website for examples https://www.circle.com/en/case-studies.

Better still, try it for yourself - sending a dollar payment cross-border using, say USDC is a delight compared to using the banking system. Almost immediate settlement, low fees and a FX rate at the wholesale rate (very little, if any spread).

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