Digital Finance CRC (DFRCC), the research organization working with the Reserve Bank of Australia on a central bank digital currency (CBDC) pilot, has released a report on the state of CBDCs globally. For advanced economies, he thinks wholesale CBDCs are likely to be issued before retail ones. And he raised some areas where he sees a greater need for a general policy discussion.

He acknowledged that Australia has stated that a wholesale CBDC has a stronger political foundation.

Part of the reason wholesale CBDCs are likely to be first is that they have fewer hurdles. Central bank experiments published to date have tended to focus much more on wholesale than retail, so there is a greater amount of shared knowledge. Wholesale CBDCs only involve modest technological modifications. Most importantly, they are not politically controversial, unlike retail CBDCs, for example, in the United States.

The two most significant use cases for wholesale CBDCs so far have been on-chain settlement of tokenized assets and cross-border payments. The DFCRC is less optimistic about cross-border payments because it believes that interconnection of existing systems could achieve the G20 goals faster. But the DFCRC sees tokenization as a key research area for Australian pilots.

Wholesale Areas Needing Further Exploration

One observation is that there has been significant experimentation with wholesale CBDCs, but not much thought has gone into access issues and trading rules. It could be assumed that only those who currently have access to central bank reserves will be able to use a wholesale CBDC. In particular, last year’s Australian wholesale CBDC trials allowed access to non-banks.

One question is whether a wholesale CBDC could be used as a backing asset for stablecoins. And if so, the impact on central bank balance sheet expansion needs consideration.

While many are considering restricting the amount of retail CBDC holdings, the DFCRC questions whether wholesale CBDCs could be used as a store of value or if they will also be limited to their use as a settlement asset. This would affect whether or not it accrues interest.

Meanwhile, the DFCRC and the Reserve Bank of Australia plan to conduct pilot tests next year to assess the economic impact of a potential CBDC. It is not intended to explore technology, as technical decisions should be based on specific use cases, not the other way around. They invited organizations to suggest use cases and received 140 proposals.