T Skevington and M Bacina
R3 publishes CBDC white paper amidst growing interest in CBDC
Enterprise blockchain software consortium R3 has published a white paper discussing the growing interest in Central Bank Digital Currencies, and the development progress made to date.
The white paper reviews the progress made on CBDC development to date, considers the distinctions between wholesale, retail and hybrid CBDC's, and considers options for future CBDC implementation.
Regarding wholesale CBDC's (which, to date, is the Reserve Bank of Australia's preferred CBDC model), R3 suggests that the key function of a wholesale CBDC is to allow banks to extinguish debts between each other resulting from the build-up of credit risk between them, and that the nature of blockchain enables this settlement to be real-time and atomic. R3 refers to Thailand's Project Inthanon, as well as Canada's Project Jasper (both of which used R3's Corda technology) to argue that:
central bank run experiments show how core existing features of [real time gross settlement] RTGS systems can be improved using blockchain
The white paper then considers retail CBDC's, which despite much enthusiasm, have yet to progress past the concept stage and into production within any central bank. However, the white paper notes that there have been various developments in the private sector which are intended to enable greater access to retail payments, including stable coins, non-blockchain solutions like Australia's NPP, and full-stack payment solutions like China's Alipay and WeChat.
Summarising the CBDC projects and experiments to date, R3 draws on the Bank for International Settlements (BIS) research, noting that:
approaches to projects have varied significantly, and there has been a recent flood of research examining novel approaches.
The BIS's research, published here, has categorised the various approaches to implementing CBDC's in the following three categories:
Hybrid: the central bank issues the CBDC but intermediaries facilitate retail payments;
Indirect: the CBDC is a claim on a wholesale intermediary; and
Direct: the central bank issues CBDC directly to retail users.
The white paper explicitly avoids entering the trenches of debating the economics or monetary policy questions of a CBDC, instead opting to focus on more technical questions.