Digital Finance CRC (DFCRC), the research organization working with the Reserve bank of Australia on a central bank digital currency (CBDC) pilot, published a report on the state of CBDC globally. For advanced economies, it believes that wholesale CBDCs are likely to be issued before retail ones. And it raised a few areas where it sees a greater need for wholesale policy discussion.
It acknowledged that Australia has stated that a wholesale CBDC has a stronger policy rationale.
Part of the reason why wholesale CBDCs are likely to go first is they have fewer hurdles. Central bank experiments published to date have tended to focus far more on wholesale than retail, so there’s a larger body of shared knowledge. Wholesale CBDCs only involve modest technological modifications. Most importantly, they are not politically controversial, unlike retail CBDCs, for example, in the United States.
The two most significant use cases for wholesale CBDCs so far have been for on-chain settlement of tokenized assets and cross border payments. The DFCRC is less optimistic about cross border payments because it believes that interlinking existing systems might reach G20 objectives faster. But the DFCRC sees tokenization as a key research area for Australian pilots.
Wholesale areas needing greater exploration
One observation is that there has been significant experimentation with wholesale CBDC but not much thought given to access issues and business rules. It might be assumed that only those currently with access to central bank reserves will be able to use a wholesale CBDC. Notably, last year’s Australian wholesale CBDC trials allowed access to non-banks.
One question is whether a wholesale CBDC might be used as a backing asset for stablecoins. And if so, the impact on the central bank’s balance sheet expansion needs consideration.
While many are considering restricting the quantity of retail CBDC holdings, the DFCRC asks whether wholesale CBDC might be used as a store of value or whether it will also be limited to use as a settlement asset. This would impact whether or not it is interest-bearing.
Meanwhile, the DFCRC and Reserve Bank of Australia are planning to run pilots next year to assess the economic impact of a potential CBDC. It isn’t aiming to explore technology, as technical decisions should be driven by specific use cases, not the other way around. They invited organizations to suggest use cases and received 140 proposals.
