CBDCs are an opportunity for central banks to offer a technologically advanced representation of central bank money for the digital economy. This article focuses on Retail CBDCs.
Finality, intraday liquidity, neutrality and lender of last resort are the central banks’ key contributions to the payment system. They ensure its safety, trustworthiness and operational efficiency.
The crucial novelty is that CBDCs offer the unique characteristics of central bank money as safe, neutral and final. Retail fast payment systems, in particular, may offer many similar benefits. For users, the two may look similar.
Central banks around the world will each act in line with their own mandates, reflecting the unique circumstances and objectives of their society. In any case, the private sector will need to play a key role in retail-facing services, account opening and a range of further activities. While CBDCs may enhance efficiency and foster innovation competition in payments, they should not upend today’s two-tier financial system.
CBDCs vs fast payment systems
Today’s payment system is a public-private partnership, working in two tiers. On the central bank balance sheet, you have cash and commercial bank deposits. The private sector provides commercial bank money, which users can access through bank transfers, cheques, credit and debit cards, and automated teller machines (ATMs). Between these two, you have constant clearing on the central bank’s balance sheet.
- Retail payment executed in real time, credit risks for payees psp results until central bank accounts are settled:
Only once the net of all retail fund transfers is settled on the central bank books are all claims extinguished. There is no further credit or liquidity risk.
2. CBDC Payment execution
CBDC payments are never subject to any credit risk
CBDC architectures could differ in their operational setup and in how the private and public sectors work together to allow seamless payments. But direct settlement in central bank money is common to all — in fact, this is the quintessential feature of a CBDC-based payment system.
Comparison of retail fast payment systems and retail CBDCs
reference/copy : https://www.bis.org/speeches/sp210331.pdf