Analysis of central bank digital currencies: What is the difference between retail and wholesale? Take the Swedish central bank as an example

Editor's Note: The original title was CBDC, Retail or Wholesale?

On December 13, 2019, the Bank of Sweden announced a message:

"The Bank of Sweden has completed the procurement of technology service providers for the eKroan pilot project and is preparing to sign a pilot agreement with Eccionel Consulting on eKroan. This project is intended to expand the Bank's understanding of the possibilities of eKroan technology.

What does this message mean, and see below:

First, what is electronic kronor?

E-krona is a digital currency issued by the central bank in response to the apparent decline in domestic cash flow. The Swedish central bank has designed a digital currency issued by the central bank to ensure the public's right to use the risk-free central bank currency for payments and savings. The currency name in Sweden is the krona krona, and e-krona is the electronic krona.

In March 2017, the Bank of Sweden launched an e-krona research and development plan. In the "Swedish Bank e-krona Plan Report (I)" published in September, the concept of "e-krona" and two options were proposed. . The electronic denomination takes the denomination of the Swedish legal currency unit denomination as denomination. It has the characteristics of popularity, anonymity, small payment, and all-weather. It has two schemes or types: one is account-based (register-based e-krona), users need to open an account with the central bank, confirmed by the database, holding an electronic crown account for storage. One is value-based e-krona, which can be stored directly in the mobile app and used.

These two schemes seem to be a bit deep-mouthed, but they are actually just a distinction between wallet categories. If the user of electronic kronor may need to hold more central bank digital currency (CBDC), or need to pay a larger amount of CBDC, the requirement of the central bank is that the user register an account (or wallet) Registration means that the user must provide personal real identity information, that is, the central bank must perform KYC authentication for the user. If the consumer just uses electronic kronor for some daily consumption, he can download an app on his mobile phone without registering an account, and can be used to exchange and receive digital currency without real name registration. Of course, this type of electronic krona, because the user is not a real name, what happened in the middle of the transaction is not easy to trace back, if it is lost, it can not be traced. After all, just like cash, it is simple to use, invisible (relatively) protected, and available at any time, but it also has problems such as loss cannot be found, and counterfeiting is not easy to identify.

2. What are retail CBDC and wholesale CBDC?

From the analysis above, it can be seen that the Swedish Krone's electronic krona is actually a retail-type CBDC solution.

In 2015, University of London researchers Sarah Meiklejohn and George Danezis published the "Centrally Banked Cryptocurrencies" report, which proposed the RSCoin prototype solution. The first study on CBDC was initiated. Since then, Canada, Singapore, Switzerland, Japan and others have proposed plans for CBDC. These schemes belong to Wholesale CDC (Wholesale CDBC), that is, they are only used for large transfers between banks or between banks and other institutions. For example, CADcoin in Canada is the CBDC used in the large-value payment system. First of all, it does not run 7 * 24 hours. Banks use the Canadian dollar in their accounts as collateral on each business day, and exchange CAD for 1: 1. Coin, return the CAD-coin to the collateralized cash at the end of the day's business hours, and the central bank destroys the returned CAD-coin. What does this mean? CAD-coin exists only on the day and does not affect the balance sheet of the central bank.

Users of wholesale CBDC must open an account with the central bank. At present, only financial institutions can open an account with the central bank. Its purpose is to use the payment settlement efficiency of the large payment settlement system, improve the speed of the wholesale financial system, reduce costs and Liquidity risk and enhanced security. In these countries, the micro-payment system has developed relatively maturely. There are currently 45 jurisdictions in the world running micro-payment settlement systems. Denmark, Singapore, the United Kingdom and other countries have matured their systems, such as the British micro-payment settlement system. The system has been running for more than 10 years, and last year the average person paid more than 30 transactions. They are more interested in the wholesale-type CBDC that is conducive to improving the efficiency of large payment settlement, and they are not interested in the retail type.

According to IBM's inspection of 23 central banks this year, there are several types of objects that are interested in retail CBDCs: economies with smaller volumes have higher costs to maintain cash distribution management; dollarized countries or regions such as the Marshall Islands, National currency sovereignty has fallen, as in some Latin American dollarized countries, coin tax revenue has fallen into the hands of foreign countries; underdeveloped economies such as Cambodia have used retail CBDCs to improve other backward small settlements. For them, issuing retail CBDC is Opportunities to increase financial inclusion and expand the inclusive financial audience.

Why is Sweden so interested in issuing retail CBDCs?

Since 2007, the cash flow in Sweden has gradually decreased, and it has decreased by about 50% in 10 years. In terms of cash-to-GDP ratio, the Swedish indicator is below 1%. In contrast, the United States is 5-7% and the South American country is 30%. The branches of most commercial banks in Sweden no longer have cash operations. If you need to deposit and withdraw cash, you can only find an ATM or make an appointment with the bank in advance. Jonas Heideman, the associate professor of the Copenhagen Business School's Digital Department who put forward the famous argument that Sweden will enter a cashless society someday in 2030. After investigating more than 700 Swedish retailers, he found that when cash transactions account for the total transactions When the proportion of the amount is reduced to less than 7%, the cost of cash management will exceed the marginal benefit of cash sales, and the merchant will refuse to accept cash from its own cost considerations. For this kind of problem, the central bank is not only to ensure that some people who have practical habits are not abandoned by this kind of social development. The most important thing is that a social payment transaction cannot be completely dependent on the payment system of a bank or a third party. The issuance of electronic krona is an important measure to regain the right to issue currency, maintain the stable development of the payment and settlement system, and allow financial services to benefit all groups in society.

3. Before and after the cooperation between the Swedish central bank and Accenture

First of all, the cooperation between the Swedish central bank and Accenture shows that the electronic krone has entered the testing phase from the design and development stage. The work includes the establishment of a test platform, the development and application of electronic kronor payment media (mobile phones, cards, smart watches, etc.), and simulation of payment service providers. , Retail outlets, and Swedish payment systems. According to relevant information, the card used for payment of electronic kronor is likely to be a card with NFC or near field payment function, because this card is widely used in Sweden, the payment speed is faster, and it may be embedded in the electronic kronor payment system.

Second, Accenture and the Bank of Sweden have signed development agreements for up to seven years. According to the rate of decline in Swedish cash, is it enough to survive 7 years? However, the agreement said that the first phase is to the end of 2020, and testing at this stage should be closed on the test platform. Then expand the test content and add other functions, the purpose is to try the feasibility of various technology applications in the test environment. It shows that the electronic kronor may also take a technology-neutral line. It does not specify which technology to use, but it depends on the test situation.

In the end, when the test is ended and transferred to the real scene, that is, when the electronic krone is officially released, there is no conclusive conclusion.

According to the information disclosed on the Swedish central bank's website, while cooperating with Accenture, whether the electronic krone will affect Swedish legislation, the Swedish central bank and the Swedish economy, and how much demand the entire society has for the electronic krone, the central bank has been Do advancement.

In April 2019, the Bank of Sweden submitted a proposal to Parliament proposing the establishment of a “comprehensive expertise” committee to review the concept of fiat money, the government's role in payments in the digital economy, and the state and private sector The responsibilities of the payment market, legally clarifying the respective roles of the central bank, the public and the private sector, gradually clearing legal obstacles for the birth of the Swedish CBDC, the electronic crown.