The Bank of Spain (BDE) has signaled its intent to explore central bank digital currencies (CBDCs) to avoid falling behind the pecking order of countries experimenting with the technology.
The central bank revealed via a press release that the first foray into the digital version of its national currency will be wholesale CBDCs between itself and commercial banks. Wholesale CBDCs are gaining steam over retail CBDCs because of their potential to promote cross-border and instant settlements.
According to the official release of the BDE, the banking regulator will focus on a trio of key issues, including the experimentation of financial asset liquidation, an analysis of the pros and cons of issuing a wholesale CBDC, and the movement of funds. The bank notes that collaboration between the private sector and other relevant stakeholders will be critical to a successful study.
Interested individuals seeking to participate in the study must submit an application to the bank before January 31, 2023. Only parties meeting the minimum requirement will be approved to participate in the experiments, with top commercial banks and other financial institutions touted to make the cut.
Spain’s central bank says the reason for wading into CBDC development is to “adapt to the needs and demands of an increasingly digital society.”
While the European Union (EU) has been inching forward in its CBDC study, the Bank of Spain clarified that its research is independent of the digital euro. The digital euro has made significant progress since the conclusion of a public consultation, with the latest development being the appointment of Christian Schäfer as the rulebook manager.
The argument against retail CBDC
Several central banks are wary of the offering of retail CBDCs and are choosing to focus their attention on wholesale CBDCs. The reason for their stance is the fear that citizens can over-rely on retail CBDCs and shun central banks in their entirety.
Reserve Bank of Australia (RBA) Assistant Governor Brad Jones revealed in a conference that commercial banks could face liquidity issues when CBDCs become the preferred mode of holdings. There are also fears that CBDC issuance will lead to the phasing out of banknotes, with the Central Bank of Nigeria (CBN) limiting cash withdrawals in a bid to stimulate usage of the eNaira.
“Customers should be encouraged to use alternative channels to conduct their banking transactions,” said Haruna Mustafa, CBN’s director of banking supervision. Although the Nigerian central bank did not expressly mention the eNaira in the statement, insiders state that the bank is keen to drive adoption levels.
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