The Central Bank of Spain is considering proposals for a wholesale CBDC project.
Central Bank calls financial firms and IT giants to submit proposals by Jan 21.
The Central Bank asserted that the proposal is unrelated to the EU's retail CBDC program.
The bankruptcy filing of several exchanges, which has eroded users' trust in digital assets. As a result, Central Banks all around the world are launching CBDC pilot programs to regain users' trust.
Recently, countries like India and Japan began pilot programs for their respective wholesale and retail CBDCs. In line with this, the Central Bank of Spain also seeking to launch a wholesale central bank digital currency (CBDC).
The Central Bank of Spain has urged financial institutions and tech giants to submit proposals for the program by January 31. According to an official statement from CBS, the program aims to replicate the movement of funds for a wholesale CBDC.
So, let's first take a quick look at what wholesale and retail CBDCs are and how they differ from one another.
CBDCs are basically the digital equivalent of fiat currency. They can be traded for the country's fiat currency and are a liability of the central bank. Meanwhile, CBDCs are broadly classified into two types: wholesale CBDCs and retail CBDCs.
The term Wholesale CBDC refers to financial institutions that hold reserve deposits with a central bank. It helps in the advancement of payment and securities settlement efficiency. Furthermore, these wholesale CBDCs contribute to the reduction of counterparty credit and liquidity risks.
Experts also noted that wholesale CBDC is similar to what the Central Bank offers to State Banks. Currently, Central Banks are investigating wholesale CBDCs for domestic and cross-border transactions.
On the other hand, the Retail CBDC can be defined as one of the currencies distributed to the general public. It is based on distributed ledger technology, and its features include anonymity and traceability. Furthermore, these retail CBDCs are available 365 days a year, with the possibility of an interest rate application.
Generally speaking, a currency is always created by the Central Bank at a wholesale level, which then makes its way to retail hands through specified institutions, unless and until we are discussing a type of direct benefit transfer.
Back to the topic, several analysts believe that Spain's Central Bank CBDC program is a part of European Union research on retail digital Euro. However, the Central Bank of Spain denied the claims, saying that it had nothing to do with the EU's ongoing retail CBDC research.
The Central Bank announcement comes at a time when calls for crypto regulations are at an all-time high following the FTX collapse, and CBDCs will make these restrictions easier to enforce.
However, many argue that CBDCs are not true cryptocurrencies because transactions on a centralized network can be regulated, negating the blockchain's primary feature of decentralization.
It will be interesting to watch how Spain intends to use a CBDC given the Euro is their official currency. Also, Christine Lagarde, President of the European Central Bank, has already expressed her stance against cryptocurrencies.
What do you think? Will Spain's CBDC see widespread adoption in the future, or will it encounter regulatory challenges? Share your views in the comment section below.
Read also: Countries Leading the Global CBDC Race | What Does the Future Hold?
