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Central Bank Digital Currencies

Countries Continue to Build Foundation for Wholesale and Retail CBDCs – CBDCs Weekly




While Bitcoin, Ethereum, and the broader digital assets market may be captivating investors lately with their run-ups to new all-time highs, CBDC development continues behind the scenes.  The following are a few examples of this from the past week, with commentary coming from various countries.

Legal Tender?

In a newly released report by the European Central Bank (ECB), both the benefits and drawbacks of a ‘digital euro’ are considered.  In order to maximize the former, while minimizing the latter, an investigation into the ideal structuring of a CBDC is being undertaken.  The following are listed as the top questions which need answering.

  • What use cases would a digital euro serve?
  • How would a digital euro coincide with current retail payment solutions?
  • How will intermediaries operate with regards to fees, costs, etc.?
  • What capabilities/features will be ‘baked-in’ to a digital euro?
  • Will a digital euro be legal tender?
  • How can each of the above questions be satisfied from a technical standpoint?

While a variety of countries are grappling with these same questions, one that stands out is the possibility of the digital euro being considered legal tender.  Many have simply assumed that an digital asset issued be a central bank would be considered legal tender, however this evidently may not be true.  Regardless of this possibility, it remains unlikely as Fabio Panetta of the ECB recently stated to Bloomberg that, “It would be quite awkward not to have legal-tender status for an additional instrument issued by a central bank.”

Wholesale CBDC

The vast majority of CBDCs currently in development are geared towards retail markets.  Another implementation exists however, and may come to fruition in the coming months – the wholesale CBDC or ‘wCBDC’.

A wCBDC would differ from a regular CBDC, as it would be structured specifically for settlement processes, rather than day-to-day spending.  The primary example of this is coming out of Switzerland, as the Swiss National Bank (SNB) and Six Digital Exchange (SDX) work to develop a wCBDC.  This partnership – which was formed 2019 – expects to soon pay dividends, with its wCBDC being technically capable of launch in early 2022.

Thomas Moser of the SNB recently spoke with CoinDesk on the prospect of a wCBDC, stating, “I would say we would be ready to go live in January, and it just takes a policy decision and the question of whether we legally could do a wholesale CBDC…But technically we would be ready to go live with a wCBDC on SDX.”

Preparatory Development

While there is definite potential behind digital assets such as CBDCs for changing the way we transact, and promoting financial inclusion, they are not a product where one-case-fits-all.  To truly act as a leap forward, they need implemented in regions where physical cash is still prevalent.  There are many countries however, where this may cease to be the case – such as Singapore.

Ravi Menon, Managing Director of the Monetary Authority of Singapore (MAS), recently commented at a FinTech conference that as it stands, “The financial inclusion benefits of a digital Singapore dollar are not compelling.  A high proportion of Singaporeans have bank accounts and electronic payments in Singapore are pervasive, highly efficient and competitive.”

With this in mind, the MAS is still actively researching and developing a potential CBDC.  It is simply doing its due-diligence, preparing for a future in which it opts to launch one.

Looking forward, if the MAS does opt to launch a CBDC, Mellon notes the following as being the top arguments why.

  1. Safety, and widespread acceptance as a result of being state issued.
  2. Promote more inclusive and efficient payment systems.
  3. Prevent private stablecoins from gaining traction and influence within the Singaporean financial system.