Wholesale CBDC
Quick Answer
A wholesale CBDC is a digital currency issued by a central bank exclusively for use by financial institutions in interbank settlements and large-value transactions.
Definition
A wholesale CBDC is a digital currency issued by a central bank exclusively for use by financial institutions in interbank settlements and large-value transactions.
Explanation
A wholesale CBDC is designed for the institutional layer of the financial system, not for the general public. Commercial banks, payment processors, and other financial institutions would use wholesale CBDC to settle transactions among themselves, replacing or complementing existing settlement systems such as real-time gross settlement (RTGS) systems and correspondent banking networks. Wholesale CBDCs operate on distributed ledger technology, enabling faster, cheaper, and more transparent interbank settlements.
The primary use case for wholesale CBDCs is modernizing interbank settlement infrastructure. Current systems for cross-border payments rely on a chain of correspondent banks, each adding cost and delay. A wholesale CBDC can enable direct settlement between financial institutions across borders, reducing settlement times from days to seconds and lowering costs by eliminating intermediary fees. The Bank for International Settlements (BIS) and multiple central banks are actively researching wholesale CBDC applications through collaborative projects.
Project Mariana explored automated market making for wholesale CBDC exchange between currencies using decentralized finance protocols. Project mBridge developed a platform for multi-central bank digital currency settlements involving China, Hong Kong, Thailand, and the UAE. Wholesale CBDCs are likely to be deployed earlier than retail CBDCs because they involve fewer regulatory complexity, privacy concerns, and infrastructure requirements, targeting a smaller group of regulated financial institutions rather than the entire population.
Example
A commercial bank in Singapore settles a large-value payment with a bank in London using wholesale CBDC, with the transaction clearing in seconds on a shared ledger maintained by both central banks, bypassing the multi-day correspondent banking chain.