Exploring the Potential of Central Bank Digital Currency (CBDC) for Retail, Wholesale, and International Payments

Central Bank Digital Currency (CBDC) is revolutionising the digital transformation of the global payments landscape. In this article, we delve into the possibilities and implications of CBDC for retail, wholesale, and international payments. Drawing insights from Accenture Banking Blog's article on "CBDC for Retail, Wholesale, and International Payments," we will explore the potential benefits and challenges of this emerging form of digital currency.

Retail CBDC holds the potential to serve as a settlement medium for digital transactions, both online and at the point of sale. Its adoption would allow the non-bank public direct access to central bank money in the digital realm. With cash declining in usage, many central banks are considering the issuance of retail CBDC to ensure continued access to central bank money, even when physical cash is no longer accessible. Integrating retail CBDC with existing payment infrastructures would enable instant settlement, reducing risks associated with batch clearing. Moreover, CBDC's programmability would allow for transaction restrictions, improved transparency, and enhanced fraud prevention measures.

Wholesale CBDC would create a level playing field for payments made in central bank money across different platforms, ensuring confidence in token-based settlement conditions. Financial market infrastructures have long relied on central bank money to mitigate settlement risks. By leveraging CBDC, financial instruments can be tokenised, enabling seamless end-to-end settlement and facilitating the merging of payment and trading processes. Wholesale CBDC would introduce diversified payment options, promote competition, and enhance resilience and security in large-value payments.

CBDC's utility in international transactions aims to expand the use of central bank money, fostering more excellent symmetry between access to national currencies and national financial instruments. By extending CBDC usage to non-residents, risks can be reduced, and more equitable settlement conditions can be established. Central bank money is only accessible to resident local banks, limiting cross-border and offshore transactions. CBDC would enable secure exchanges in central bank money, facilitating real-time settlement and collapsing trading and settlement into a single operation. Establishing settlement corridors and cross-network approaches would allow for seamless CBDC transactions in securities and other financial instrument trading.

The advent of CBDC presents immense opportunities for digitalising retail, wholesale, and international payments. With its potential to offer instant settlement, enhanced transparency, and improved security, CBDC can address evolving customer preferences while maintaining the integrity of central bank money. However, adopting CBDC comes with the challenges of integrating into existing payment infrastructures and addressing regulatory requirements. Central banks must approach CBDC adoption innovatively, prioritising functionality and security to ensure relevance in the evolving digital landscape.