Numerous questions are on the minds of central banks as they embark on issuing Central Bank Digital Currency (CBDC), therefore, we gathered the most frequently asked questions during our meetings and their answers by our experts in an enlightening CBDC frequently asked questions series.
1. What are the advantages of wholesale CBDC over traditional payment systems like the ACH and RTGS?
The main difference that CBDC has, especially if deployed using blockchain, is the immutability of the data. CBDC is more than a clearing or settlement engine as it provides additional advantages in areas of monetary policy, supervision and control. Immutable data means that the host of the solution will have records of all valid and even invalid transactions.
In CBDC, money is digitized, so, instead of moving money from one bank to another, it is recorded on the blockchain network and transferred without the need for any ‘logistics’ for money. CBDC cannot be compared with ACH as it instantly transfers money as opposed to Net Clearing Positions generated by the ACH.
RTGS on the other hand, is the system used to settle accounts. We see that CBDC and RTGS can work together to enhance the financial system of the nation in terms of cost and efficiency at least in the initial stages.
2. What happens if the Central Bank is down, including systems such as the RTGS?
If for any reason the central bank is down, the CBDC network will continue to operate normally since it is based on Distributed Ledger Technology (DLT), in which the network will sustain operability if one or even more nodes are offline.
3. Can retail and wholesale CBDCs be implemented together?
Yes, retail and wholesale CBDCs can be implemented to work together. The recommended approach for such an implementation is to have separate networks with a ‘bridge’ between wholesale and retail accounts, rather than using the same network for security reasons.
4. In terms of resources, will implementing both retail and wholesale CBDC be too much?
More resources will be required if both CBDC types are implemented, but with the wholesale CBDC, resources will be minimal in comparison with retail. If human resources are a concern, it can be implemented consecutively; the same team can work on both cases.
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