What is a CBDC?

Sabrina Rochemont

25 years: Digital payments specialist

In this video, Sabrina introduces the key concepts underpinning Central Bank Digital Currencies (CBDCs). She evaluates the two potential forms that CBDCs might take, ‘wholesale’ and ‘retail’ / ‘general purpose’.

Blockchain

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What is a CBDC?

7 mins 14 secs

Key learning objectives:

Understand the potential of blockchain in the context of a wholesale CBDC
Explore the two types of CBDCs that are being considered
Assess the differences between a retail/general purpose CBDC and a wholesale CBDC

Overview:

Central Bank Digital Currencies (CBDCs) will likely take one of two forms. CBDCs will either be ‘Wholesale’, in which case they would be an evolution of current central bank settlement facilities. Or, they will be in the form of a ‘Retail’ CBDC, which would be available to retail customers.

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Summary

What are the expected benefits of a wholesale CBDC?

A wholesale CBDC would effectively be an evolution of current central bank settlement facilities. This technical upgrade would imply updates to the organisation of settlements. It is expected that wholesale CBDCs may reach fruition before retail CBDCs and have a large impact on the settlement of payments.

How could technology such as blockchain benefit central banks?

Provide a single source of truth for all transactions
Improve risk management in settlement
Help address counterparty credit and liquidity risks
Provide full visibility of financial activity to regulators

How would a retail CBDC be used?

Many central banks are now considering developing a general-purpose CBDC that would be available for retail use, hence called a retail CBDC. It would provide a digital alternative to cash. Depending on the design, it would mean that retail customers would have an additional currency choice when making purchases in-store or online. Retail customers may choose to keep some deposits as a CBDC deposit with a central bank or a payment service provider.

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Sabrina Rochemont

Sabrina Rochemont is an experienced IT Service Management Professional. She has been researching the digitisation of payments and the possible evolution toward a cashless society for a working party. She is co-author of several papers on the topic of cashless societies including "A cashless Society - Benefits, risks and issues”, published in 2018 and “Understanding Central Bank Digital Currencies”, published in 2019. She’s also co-authored several other papers covering many aspects of the topic such as the environmental impact of payments.

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