1. CBDC: From Retail to Wholesale
2. Potential Benefits of Wholesale CBDCs for Financial Institutions
3. Comparison with Retail CBDC Approach

Australia has changed its approach to Central Bank Digital Currencies (CBDCs), focusing on the use of wholesale digital currencies instead of retail ones.

CBDC: From Retail to Wholesale

This shift diverges from earlier discourse that considered retail CBDCs for consumer use. The current focus is on wholesale digital currencies, mainly targeted at financial institutions. This model enables higher degrees of automation, transparency, and security for large transactions between multiple parties, making it suitable for real-time settlements in complex financial networks.

Potential Benefits of Wholesale CBDCs for Financial Institutions

Oversight of CBDCs can enable faster payments and reduce settlement risks while enhancing the clearing process. The Reserve Bank of Australia (RBA) has identified this as a critical issue needing improvement. Establishing a full-fledged CBDC could potentially eliminate many operational costs and increase the speed and efficiency of cross-border transactions, which are currently slow and inefficient. Additionally, the country aims to advance its financial market to rely on CBDCs in wholesale segments, helping institutional investors and central banks provide faster and more secure settlements.

Comparison with Retail CBDC Approach

Retail CBDCs would allow consumers to directly hold digital money issued by the central bank but raise privacy concerns and questions about the preparedness of existing infrastructures. A retail CBDC could also alter monetary policy and commercial banks, as citizens might choose to hold funds directly with the central bank. In this regard, wholesale CBDCs mitigate these risks as they do not engage directly with the public, making them more suitable for the Australian market, where banking infrastructure is already well-developed and customer access to banking services is high.

Focusing on the development of wholesale CBDCs positions Australia to strategically shape the transition of the global financial environment to digital currencies. This is seen as the next stage in the evolution of digital financial assets, promising to enhance the stability and speed of settlements in high-value transactions.