According to the RBI’s concept note, a wholesale CBDC—for interbank transfers and wholesale transactions—has the “potential to transform the settlement system”. Such an instrument would make capital market financial transactions more efficient and secure. It would also help counter-parties avoid the need for collateral to manage settlement risk.
“In effect, wholesale CBDCs could make central bank money programmable, to support automation and mitigate risks,” the note said.
According to Garg, however, existing systems for wholesale transactions are adequate already. “The settlement today—whether it’s real gross transfers or otherwise—is a flawless, default-less settlement which takes place today and that also is done on the RBI books.”
But Sharat Chandra, vice president of research and strategy at EarthID and a blockchain expert, said a wholesale CBDC would be a necessary addition from a cross-border payments standpoint. “In the current system, you have a counter-party settlement risk. But when two sovereign nations are exchanging goods and services with their own sovereign currency, it may not be dollar denominated.”
While blockchains may work as a technology for the wholesale CBDC, they’re unlikely to succeed for the retail version, he said. “Blockchains are not mature enough or scalable enough to support that.”
Among the RBI’s stated aims for offering a retail CBDC is to provide people the “same experience of dealing in currency in digital form, without any risks associated with private cryptocurrencies”, the concept note said.
Reduction of costs associated with management of physical cash, improving financial inclusion, exploring cross-border payments via CBDC and supporting innovation in payments are also among the reasons cited by the RBI.