Why is European Central Bank pitching for wholesale CBDCs?

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Why is European Central Bank pitching for wholesale CBDCs?

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 Why is European Central Bank pitching for wholesale CBDCs?
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Highlights

  • The ECB is speculating on the concept of wholesale CBDCs.
  • ECB executive board member Fabio Panetta suggests combining both DLT and Target services for the wholesale CBDCs.

The race towards the development and the eventual implementation of central bank digital currencies (CBDCs) is on a full scale. While Nigeria and Iran have already launched their CBDCs, China and India are still in their trial stage before the eventual rollout.

Nigeria, in 2021, had launched its eNaira, thereby becoming the first African nation to do so. Meanwhile, Iran joined Nigeria with the launch of its CBDC called crypto rial. According to the World Economic Forum (WEF), several countries have conducted private-sector experiments.

The European Central Bank (ECB) is at the forefront of it moving aggressively towards formulating a plan for the CBDCs. The ECB has been in talks with the banks of the region, galvanizing them to ensure they are prepared before the launch.

ECB considering wholesale CBDC

The ECB is speculating on the concept of wholesale CBDCs. They believe exploring the option is necessary as the market players expect the same. ECB executive board member Fabio Panetta on 26 September, in a banking symposium, said that the global body is exploring two options for the wholesale CBDCs.

Panetta said that the wholesale CBDC is largely a new concept and has come to light following the emergence of distributed ledger technology (DLT). It aims to provide an efficient digital infrastructure for settling transactions between banks in central bank money.

One of the two options for the wholesale CBDCs includes the Eurosystem’s Target2 has been in place since 2017. What makes Target2 ecosystem beneficial is its ability to act as a securities settlement platform and also as an instant payment settlement service. Simultaneously, Panetta feels DLTs provide a viable option as it aims to improve pieces of the settlement system.

Panetta has suggested that ECB consider integrating both DLT and Target services. Panetta feels by doing so, the DLT platforms and central bank infrastructures would be able to work well, thereby offering faster service.

Conclusion

Although the CBDCs are still a work in progress, the discussions and debates between industry players and regulatory bodies. The wholesale CBDCs involve a narrower set of stakeholders, which banks or central securities depositories use for the settlement process. Panetta believes these stakeholders could play a vital role in the wholesale settlement chain.

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