Architecting a Wholesale CBDC

Summary Sections 16.1–16.3 This chapter introduces wholesale CBDCs (wCBDCs), which focus on optimizing cross-border payments, addressing inefficiencies in traditional systems like high costs, delays, and transparency issues. These challenges arise from an outdated correspondent banking system and inconsistent international regulations. wCBDCs aim to enhance payment system efficiency, introduce new monetary policy tools, and mitigate risks from private digital currencies. They could operate via direct central bank issuance, intermediation, hybrid models, or through DLT. While wCBDCs offer limited benefits in domestic contexts with efficient RTGS systems, they hold significant potential for streamlining cross-border settlements, reducing risks, and cutting costs. Key operations include minting, issuing, transferring, and facilitating secure transactions like DvP and PvP. Initiatives like Project Helvetia exemplify wCBDCs’ role in improving global financial system efficiency, particularly in cross-border contexts. Section 16.4 This chapter explores how a wholesale Central Bank Digital Currency (wCBDC) requires certain crucial features for success. These include security measures to protect transactions, 24/7 availability, various settlement options, settlement finality for risk reduction, privacy for transaction details, atomicity for simultaneous settlement, fast transaction processing, programmability through smart contracts, and sovereignty aspects. Reporting and integration with central and commercial banks are also essential. KYC/AML requirements align with existing processes, and mechanisms to detect illicit activity contribute to risk management. These features collectively ensure the efficiency, security, and integrity of a wCBDC system.