Instrument CBDCs are designed to be used by every kind of stakeholder in an economy, as with cash. But we can broadly categorise the types of payments that would typically be made with a CBDC into:
• Retail (households and businesses)
• Wholesale (banks, financial institutions, payment providers)
What is a retail CBDC?
Retail CBDCs have a wider use, intended to fulfil the everyday payment needs of people and companies in a country. This is where central banks issue a digital form of a banknote to complement the existing notes and coins they provide. The size of payments in a retail CBDC would typically be smaller than a wholesale CBDC. A general-purpose CBDC like this supports a more efficient, resilient, and diverse domestic payments system.
An example of a retail CBDC would be the US Fedcoin, the Bahamian Sand Dollar, or the Nigerian eNaira.
What is a wholesale CBDC?
Wholesale CBDCs, on the other hand, would only be used by specific financial institutions as a settlement asset in the interbank market, and involve larger sums, as a kind of accounting system. Central banks can issue such currencies to make the clearing and settlement of trades between banks (including tokenised assets and commodities) more efficient and secure; even cross-border. They can also address issues of counterparty credit risk and liquidity.
An example of a wholesale CBDC would be the Canadian CADcoin.
Retail vs wholesale CBDC?
Both types of CBDC can be catered for by standalone solutions. One does not rely on the other; although it is important to choose a design and technology approach that ensures interoperability and convertibility between a retail and wholesale CBDC where a central bank is looking to deploy both. In the future, it is entirely possible that we will see hybrid solutions that attempt to deliver token-based forms of money, using a more traditional account-based solution.
Some implementations of stablecoins follow this approach, and others, like Apple Pay, are slowly moving away from traditional account-based forms of money to something more similar to a token-based, digital cash CBDC in the form of peer-to-peer payments between Apple devices.
At nChain, we are working with central banks to research and design a truly more resilient, trusted and inclusive modern economy, securing the livelihoods and prosperity of citizens for generations to come.
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