Put simply, wCBDC is digital central bank money for the interbank market. The term wCBDC is used explicitly for tokenised central bank money, i.e. central bank money that is traded using distributed ledger technologies (DLT). The global tokenisation of central bank money has several advantages, such as the ability to connect different RTGS systems.
Wholesale central bank digital currencies (wholesale CBDCs or wCBDCs) are one of the most interesting trends in payment transactions. We examine developments in this area in the euro area and the potential of this trend. A brief overview.
What is wCBDC?
How is wCBDC developing in the euro area?
While central banks around the world are working on the introduction of digital currencies based on DLTs, the Eurosystem is investigating three innovative approaches for settling transactions between financial institutions using new technologies.
Particularly exciting is the potential use of smart contracts, which are designed to enable automated and rapid settlement of payment-versus-payment (PvP) transactions. A key focus is on improving the efficiency and security of cross-border payments, which are often hampered by delays and high costs today.
By integrating with existing clearing systems, wCBDC could set new standards and revolutionise international payments. At the same time, these new technologies still face legal, technical and economic challenges that need to be overcome.
What approaches are there for Wholesale CBDC?
There are currently three approaches in the euro area, whose test phase expires this month:
- Trigger Solution (Deutsche Bundesbank)
- TIPS Hash Link (Banca d’Italia)
- Full DLT (Banque de France)
All three solutions have their advantages and disadvantages. Depending on the results, one of the solutions could enter the implementation phase or the project could be discontinued.
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