Explore the central bank’s digital currency path selection: wholesale and retail

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There is no uniform answer to the choice between wholesale and retail. Central bank digital currency projects of different paths just confirm and complement each other.

Original title: “The Path Choice of the Central Bank’s Digital Currency: Wholesale or Retail? 》
Authors: Xu Zhong, Zou Chuanwei, the former is the vice committee of China Interbank Market Dealers Association, the latter is the chief economist of Wanxiang Blockchain

With the rapid development of financial technology, especially the advancement of central bank digital currencies, financial technology has become an area of ​​widespread concern and in-depth discussion by regulators, financial practitioners and academic researchers in various countries.

The book “Fintech: Frontiers and Trends” starts from the basic concepts of identity, account, data, currency, risk and competition, constructs a new analytical framework for financial technology and its supervision, and deeply reveals the internal logic of financial technology innovation and development. On this basis, standing at the forefront of financial technology, to explore the future development of financial technology, mainly including financial technology development trends, financial technology infrastructure and core elements, dialectical understanding of financial technology and inclusive finance, block The core issue of financial technology, the digital currency revolution, and the future challenges of regulatory technology are six aspects.

The following is an excerpt from this book. The original title is “The Path Choice of Central Bank Digital Currency: Wholesale or Retail? “.


The central bank’s digital currency has a variety of design options. One of the important issues is whether the central bank’s digital currency is wholesale or retail. The use of wholesale central bank digital currency is limited to between the central bank and financial institutions, and is not open to the public. The retail central bank digital currency is also called the general target type, and its use is for the public. From the perspective of central bank digital currency projects of major central banks, some are retail-oriented, such as the DC/EP of the People’s Bank of China. Some focus on wholesale, such as the Jasper project of the Bank of Canada, the Ubin project of the Singapore Monetary Authority, the Stella project of the Bank of Japan and the European Central Bank, and the LionRock project of the Hong Kong Monetary Authority. A survey conducted by the Bank for International Settlements on 66 central banks around the world (corresponding to 75% of the world’s population and 90% of economic output) found that 15% of central banks are studying wholesale central bank digital currencies, and 32% of central banks are studying retail Central bank digital currency, nearly half of central banks are studying both wholesale and retail central bank digital currencies (Boar et al., 2020). We believe that as the central bank’s digital currency design plan gradually reaches consensus on some key issues, the most important choice that the central bank’s digital currency project needs to make is whether to make a wholesale or a retail first. This choice will determine the target application scenario, design and development path, and implementation strategy of the central bank’s digital currency.

This article is divided into four parts. The first part discusses the main issues to be considered in the central bank’s digital currency design plan, the second part introduces the research situation of retail central bank digital currency, the third part summarizes the wholesale central bank digital currency experiment, and the fourth part is the central bank’s digital currency outlook.

The main design issues of central bank digital currency

In any country, the central bank digital currency is a systematic project, and multiple issues need to be considered in the design plan. The World Economic Forum (2020) focuses on issues to be solved, electronic payment ecology, central bank digital currency forms, operational risks, financial inclusion, data protection, regulatory compliance, macroeconomic and financial risks, central bank digital currency design elements, technology choices and Related risks, governance mechanisms, and implementation strategies discussed the issues to be considered in the central bank’s digital currency design plan. We believe that after more than six years of research and experimentation, some core issues have gradually reached consensus.

The central bank’s digital currency is a digital form of liabilities of the central bank and a new form of legal tender. Since the central bank’s digital currency is a liability of the central bank, it replaces only the central bank’s currency, rather than other levels of currency such as commercial bank deposit currencies. This leads to two meanings. First, the central bank currency contains cash and deposit reserves, and the central bank’s digital currency pair can form a substitute for both. The central bank digital currency replaces cash and corresponds to the retail central bank digital currency; the central bank digital currency replaces deposit reserves and corresponds to the wholesale central bank digital currency. Second, the so-called “central bank digital currency replaces broad money” is logically difficult to hold. Some debt instruments of commercial banks (such as certificates of deposit and bonds) can be tokenized, but this is not the same concept as the central bank’s digital currency.

There are two modes of central bank digital currency issuance. First, the demand-driven model. Commercial banks purchase central bank digital currencies from the central bank through deposit reserves. For example, in the DC/EP plan of the People’s Bank of China, in the issuance phase, the People’s Bank of China deducts commercial bank deposit reserves and issues DC/EP in equal amounts; in the withdrawal phase, the People’s Bank of China increases commercial bank deposit reserves by the same amount and cancels DC /EP. The demand-driven model has two main advantages: first, commercial banks determine the number and pace of central bank digital currency issuance and withdrawal according to market demand, so that central bank digital currency can better adapt to market demand; second, central bank digital currency issuance and withdrawal do not affect The total amount of base currency has a neutral effect on monetary policy. Second, supply drive mode. For example, the central bank uses the central bank’s digital currency to buy bonds and foreign exchange from commercial banks on the open market, or the central bank uses the central bank’s digital currency to issue reloans to commercial banks. Under this model, the central bank determines the number and pace of central bank digital currency issuance and withdrawal, and the central bank’s digital currency issuance and withdrawal means the increase or decrease of the total amount of base currency. From the perspective of central bank digital currency projects of major central banks, the demand-driven model is dominant, and the principle of central bank digital currency “issuance based on 100% reserves” has been generally followed.

In the central bank’s digital currency issuance and withdrawal, the central bank’s counterparty can be a commercial bank or the public. The former corresponds to the dual model (also known as the two-tier business model): the central bank’s digital currency issuance and withdrawal occur between the central bank and commercial banks, and the public obtains and deposits the central bank’s digital currency through transactions with commercial banks. The latter corresponds to the unary model. The unary model has higher requirements for the central bank’s digital currency system and will have a greater impact on the business model of commercial banks. Therefore, central bank digital currency projects of major central banks generally follow a binary model. There are two explanations for the binary model. First, retail central bank digital currencies generally follow a binary model. The public obtains central bank digital currencies indirectly from commercial banks instead of directly acquiring central bank digital currencies from the central bank. Second, a variant of the dual model is the so-called synthetic central bank digital currency (Adrian, 2019). In the synthetic central bank digital currency, the digital currency is a liability of an issuing institution, but based on the issuer’s reserve assets in the central bank.

The central bank digital currency can adopt the Token paradigm or the account paradigm. In summary, the account paradigm adopts a centralized management method, users need to provide identity information (that is, to prove “who you are”), and transactions under the account paradigm are hierarchical; the Token paradigm can adopt a decentralized management method and open With better performance, users need to prove that they know certain specific information (such as private keys), and transactions under the Token paradigm are peer-to-peer. The central bank digital currency projects of major central banks are based on the Token paradigm. For example, Jasper, Ubin, Stella, LionRock. The loose coupling of DC/EP accounts is essentially a token paradigm. However, there are also some central bank digital currency projects that adopt the account paradigm, such as Iceland’s Rafkróna, Bahamas’ Sand Dollar, and Ecuador’s Dinero Electrónico (Auer and Böhme, 2020). What needs to be noticed is that central bank digital currency projects that adopt the account paradigm are generally retail. The wholesale central bank digital currency replaces the deposit reserve, and the deposit reserve is based on the account paradigm and is already digital, so it is not meaningful for the wholesale central bank digital currency to adopt the account paradigm.

Whether the central bank’s digital currency pays interest is an issue still being debated. Some scholars believe that if the goal of the central bank’s digital currency is to replace cash, then the central bank’s digital currency should not pay interest like cash. However, some scholars believe that if the central bank’s digital currency can completely replace cash, then the central bank’s digital currency interest rate will become a powerful monetary policy tool that “directs” the public from the central bank, especially when the central bank faces a zero lower limit on nominal interest rates. Interest rates can be a tool for implementing negative interest rates. The central bank digital currency projects of major central banks tend not to pay interest for the following reasons. First, although cash will spend a lot of cost in design, printing, distribution, return, and anti-counterfeiting, it also provides convenience for some illegal economic activities, but cash is important for network connections, professional knowledge of cash users, and software and hardware equipment. No requirement. Therefore, most countries do not have plans to completely replace cash with central bank digital currency, and it makes little sense to use central bank digital currency interest rates to break through the zero lower limit of nominal interest rates. Second, as a new monetary policy tool, the central bank’s digital currency interest rate has many unknown problems in theory and practice, so it cannot be used lightly. Third, if the central bank’s digital currency has an offline payment function, it will bring challenges to interest calculations. Fourth, if the central bank’s digital currency interest income is to be taxed, it will destroy the anonymity of the central bank’s digital currency.

The above discussed some gradually reaching consensus issues in the central bank’s digital currency design plan. In general, mainstream central bank digital currency design solutions will have core features such as “cash replacement, based on 100% reserve issuance, following a dual model, adopting the Token paradigm, and not paying interest”. In the central bank’s digital currency design plan, the issue that has not yet reached a consensus is whether to give priority to wholesale or retail. Judging from the research and practice of central bank digital currencies in major countries and regions, some of them are wholesale-oriented, and some are retail-oriented. There should be no unified answer to this question, but the advantage is that the central bank digital currency projects of different choices just confirm and complement each other. Finally, it should be noted that the retail central bank digital currency also includes the wholesale link, but the wholesale link only targets the central bank’s digital currency issuance and withdrawal, not the central bank’s digital currency application in securities transactions and cross-border transfers.

Research situation of retail central bank digital currency

Retail central bank digital currency has become an academic issue that has attracted much attention. Auer and Böhme (2020) discussed retail central bank digital currency related technologies, and believed that the retail central bank digital currency design should adapt to user needs, including cash-like point-to-point payment functions, convenient real-time payment, flexibility and Steady operation, anonymity in legal payment scenarios, accessibility to everyone, and cross-border payments. Orr and Borman (2020) also made an analysis of existing retail central bank digital currency projects in terms of whether it is a direct liability of the central bank, whether to use distributed ledger technology, the Token paradigm or the account paradigm, and whether it is used for domestic or cross-border payments. Sorted out. Kiff et al. (Kiff et al., 2020) reviewed the research on retail central bank digital currencies and found that: First, the main goal of the central bank’s research on retail central bank digital currencies is to promote financial inclusion and maintain the central bank’s role in the monetary system. Second, the central bank tends to be responsible for the issuance of central bank digital currency, but outsources the distribution and payment of central bank digital currency to market institutions; third, some central banks use traditional centralized accounts, and some central banks use distributed Ledger technology; fourth, how to protect the privacy of user identity information and transaction data, and meet financial integrity standards is an important challenge facing the central bank.

The retail central bank digital currency is expected to achieve cash-like security and the convenience of peer-to-peer payment. The main goal of the central bank to develop retail central bank digital currency is to use the openness of the central bank’s digital currency system to promote financial inclusion. The fine-scale payment data provided by the central bank’s digital currency system helps macroeconomic decision-making. In the context of the new crown epidemic, the central bank’s digital currency will also provide an effective tool for the government to pay individual relief payments. The relationship between retail central bank digital currency and cash usage is more subtle. On the one hand, in countries that use more cash, the central bank hopes to replace cash with central bank digital currency, which will not only reduce the costs related to the cash system, but also alleviate the impact of the untraceability of cash on money laundering, terrorist financing, and tax evasion. On the other hand, in countries that use less cash, the central bank hopes that the public will hold central bank currency in the form of central bank digital currency, which not only promotes the safety, efficiency and stability of the payment system, but also eases the need for non-bank payment institutions to become larger. User privacy protection and fair market competition.

The retail central bank digital currency design plan needs to consider the following issues. First, the impact of retail central bank digital currencies on financial stability and monetary policy. Retail central bank digital currencies may compete with bank deposits. The public will convert some deposits into central bank digital currencies, which will affect the stability of bank deposits and bank intermediary functions, and increase the possibility of bank runs. One solution is to introduce some frictional factors in the process of users converting deposits into central bank digital currencies. The retail central bank digital currency is equivalent to increasing the public’s cash preference in digital form. The public’s conversion of some deposits into central bank digital currency will reduce the currency multiplier and cause a certain monetary tightening effect. This tightening effect requires central bank monetary policy to hedge. In addition, the retail central bank digital currency will have a complex impact on the payment market.

Second, the payment and settlement arrangements for retail central bank digital currencies. If the retail central bank’s digital currency payment is processed by the central bank in the first time, it is equivalent to the central bank establishing a public-facing real-time full settlement system, which is very important for the security, efficiency, and ability of the central bank’s digital currency system to resist cyber attacks. High demands. The clearing and settlement of the digital currency of the retail central bank is entirely the responsibility of the central bank, which is not conducive to mobilizing the enthusiasm of market-oriented institutions to apply and promote the digital currency of the central bank.

Third, retail central bank digital currencies need to take into account the three requirements of openness and inclusiveness, limited anonymity, and regulatory compliance. The retail central bank digital currency system is directly open to the public, has good openness, and satisfies users’ demand for anonymity in legally compliant payment scenarios, but faces many new problems in regulatory compliance. The People’s Bank of China introduces the link between the real-name system level of the DC/EP wallet and the wallet limit, and uses big data technology to analyze suspicious capital flows to meet the “three anti-” (anti-money laundering, anti-terrorist financing, and anti-evasion) supervision Claim. This is a solution that deserves attention.

Fourth, how to play the role of the market in the application and promotion of retail central bank digital currency. The main work of the central bank in the retail central bank digital currency is to do a good job in system design, build infrastructure, and formulate technical standards. The application and promotion of the central bank’s digital currency in retail scenarios should be the responsibility of the market, which embodies the principle of public-private cooperation and the spirit of not competing for profit with the people. The question is: what motivation do market-oriented institutions have to be responsible for the application and promotion of retail central bank digital currencies? If market-oriented institutions are the beneficiaries of the existing payment system, and retail central bank digital currencies may challenge their existing market position, why should they support Retail central bank digital currency? Solving these problems is not easy. On the one hand, it is necessary to make full use of market-oriented institutions’ penetration of retail scenes, including user resources, online and offline acquiring systems, and scene conversion capabilities. On the other hand, it is necessary to introduce incentive-compatible design to market-oriented institutions and make appropriate transfers to the people.

Fifth, how do foreign individuals and institutions hold and use retail central bank digital currencies. The retail central bank digital currency naturally has the characteristics of facilitating cross-border payments. In theory, foreign individuals and institutions can use the same procedures as domestic individuals and institutions to open retail central bank digital currency wallets. Although retail central bank digital currencies are technically easy to “cross” national borders, they need to “go out” on the premise of respecting the sovereignty of other countries’ currencies. To this end, it is possible to consider introducing more stringent quota restrictions on the retail central bank digital currency wallets of overseas individuals and institutions, and regularly share the holding and use of retail central bank digital currencies with overseas central banks.

It should be noted that both retail central bank digital currencies and wholesale central bank digital currencies can be used to improve cross-border payments, but the focus is different. Retail central bank digital currency realizes cross-border point-to-point payment. In the retail central bank digital currency system, from a purely technical point of view, there is no distinction between domestic and overseas wallets, and there is no distinction between onshore, offshore and cross-border payments. However, it requires the central bank’s system architecture and technical capabilities. Very high. The use of retail central bank digital currency for cross-border payments can be completely independent of the intermediary function of commercial banks. The wholesale central bank digital currency is used for cross-border payments, retaining the intermediary function of commercial banks, mainly to improve the current agency banking mechanism.

Experimental situation of wholesale central bank digital currency

Different from the retail central bank digital currency, representative wholesale central bank digital currency projects have undergone multiple rounds of trials and detailed disclosures, such as the Ubin project, the Stella project, the Jasper project, and the LionRock project. From these progress reports, we can see the core issues that the wholesale central bank digital currency must solve in stages.

Can the wholesale central bank digital currency support real-time full settlement? Can the liquidity saving mechanism be realized in a decentralized way?

This involves the settlement method in the payment system. Real-time full settlement refers to full settlement of payment instructions one by one. Real-time full settlement is highly efficient and reduces the credit risk of all parties involved in the payment, but it has higher requirements for liquidity. Corresponding to real-time full settlement is delayed net settlement, which refers to net settlement after netting payment instructions, which can save liquidity, but it takes a long time and has settlement risks. In addition, there is a hybrid mode of real-time full settlement and delayed net settlement. The payment system provides a liquidity saving mechanism, and the payment instruction is netted with other payment instructions before settlement. In almost all countries, wholesale payments use real-time full settlement, and the real-time full settlement system is usually owned and managed by the central bank (such as the large-value payment system of the People’s Bank of China).

A representative wholesale central bank digital currency project test shows that the wholesale central bank digital currency can support real-time full settlement, and the liquidity saving mechanism can be implemented in a decentralized manner (that is, through smart contracts). For example, the second phase of the Ubin project uses R3 Corda, Hyperledger Fabric and Quorum to implement the key functions of the real-time full settlement system, as well as the queuing mechanism and transaction congestion solutions related to the liquidity saving mechanism. The three platforms can meet the requirements of financial infrastructure in terms of scalability, performance, and reliability, and have privacy protection considerations and designs. For another example, the Hyperledger Fabric platform-based solution in the first phase of the Stella project can meet the performance requirements of a real-time full settlement system. The amount of transaction requests that can be processed per second in a distributed ledger technology environment is the same as the real-time full amount in the Eurozone and Japan The settlement system (TARGET2 and BOJ-NET respectively) handles the same amount of transaction requests, and can implement a liquidity saving mechanism in a distributed ledger technology environment.

Can the wholesale central bank digital currency support Tokenized securities transactions and realize the payment of securities?

After the securities transaction, settlement refers to the transfer of ownership of securities and funds in accordance with the agreement, which is divided into the payment end and the payment end. Among them, the payment end refers to the transfer of securities from the securities seller to the securities purchaser, and the payment end refers to the transfer of funds from the securities purchaser to the securities seller. One of the main risks of settlement is the principal risk, which refers to the risk that the seller cannot obtain funds after the delivery of the securities because the payment of funds and the delivery of securities are not synchronized, or the risk that the buyer cannot obtain the securities after paying the funds. Therefore, the post-processing of financial transactions emphasizes the principle of payment for securities-securities delivery should and only be paid with funds.

In this scenario, the payment terminal uses wholesale central bank digital currency, and the coupon payment terminal uses tokenized securities. There are two situations in the voucher payment in this scenario. First, the coupon payment terminal and the payment terminal use the same distributed ledger technology system, which is called single-book coupon payment. The statement account is for voucher payment, and the funds and securities are recorded in the same account. After both parties in the transaction confirm the transaction instructions, the atomic settlement smart contract can coordinate clearing and settlement, so that the transfer of securities and funds can be completed at the same time. Second, the coupon payment terminal and the payment terminal use two different distributed ledger technology systems, called cross-book coupon payment. Cross-book bond payment is a greater challenge, which is the focus of the wholesale central bank digital currency project experiment, and there are a variety of optional cross-chain technologies.

The third phase of the Ubin project is based on multiple platforms (Quorum, Hyperledger Fabric, Ethereum, Anquan Blockchain, and Chain Inc Blockchain). It aims at the relationship between Singapore government bonds and wholesale central bank digital currencies in different distributed ledger technology systems. The transaction tests the feasibility of cross-ledger bond payment. The Ubin project tested three prototypes. The first prototype was designed by Anquan. The wholesale central bank digital currency is based on Quorum, and the tokenized securities are based on the Anquan blockchain. The second prototype was designed by Deloitte. The wholesale central bank digital currency is based on Ethereum, and the tokenized securities is based on Hyperledger Fabric. The third prototype was designed by Nasdaq. The wholesale central bank digital currency is based on Hyperledger Fabric, and the tokenized securities is based on the Chain Inc blockchain. It can be seen from these prototypes that whether it is a wholesale central bank digital currency or tokenized securities, there are a variety of distributed ledger technology systems that meet the requirements. The cross-chain technology used in the third phase of the Ubin project is the hash time lock protocol. The experiment found that the use of distributed ledger technology can shorten the settlement cycle to T+1 or all-weather real-time settlement (the current settlement cycle of the Singapore securities market is T+3 ), thereby reducing counterparty risk and liquidity risk. However, settlement failures may occur in cross-ledger coupon payments using the Hash time lock protocol, so the arbitration institution is an important design for resolving transaction disputes in the system. In addition, the Hash time lock protocol will lock assets during the settlement cycle, so that assets cannot be used for other transactions during this period, which may reduce market liquidity.

The second phase of the Stella project tested single-book coupon payment and cross-book coupon payment. In single-book coupon payment, after both parties of the transaction reach an agreement on the transaction instruction, the payment obligations of the payment terminal and the coupon payment terminal are combined into one transaction, and both parties directly use the encrypted signature for processing. Cross-ledger coupon payment uses the hash time lock protocol. Similar to the Ubin project, the Stella project also found that the hash time lock protocol may cause settlement failure.

Therefore, the wholesale central bank digital currency can support tokenized securities transactions, and in the distributed ledger technology environment, single-book coupon payment can be realized, but the hash time lock protocol that cross-ledger coupon payment relies on has certain defects.

Can wholesale central bank digital currencies support simultaneous cross-border transfers?

The logic of the wholesale central bank digital currency applied to synchronous cross-border transfers and applied to tokenized securities transactions, but the payment side has become foreign exchange.

In the fourth phase of the Ubin project, the Jasper project cooperated with a trial of simultaneous cross-border transfers. The Singapore dollar central bank digital currency is based on the Quorum platform, and the Canadian dollar central bank digital currency is based on the R3 Corda platform. They examined three options. The first is the middleman program. The intermediary is usually a commercial bank and participates in Quorum and R3 Corda platforms at the same time. For example, after the intermediary receives the Singapore dollar central bank digital currency on the Quorum platform from the Singapore bank that pays, it performs internal exchange rate conversion, and then sends the Canadian dollar central bank digital currency to the receiving Canadian bank through the R3 Corda platform. In the second scheme, both the Singapore bank that pays and the Canadian bank that receives the money participates in the Quorum and R3 Corda platforms at the same time, and they can directly exchange two central bank digital currencies. In the third scheme, the same distributed ledger technology system supports multiple central bank digital currencies. The Ubin project and the Jasper project focus on testing the middleman solution, and implement synchronous cross-border transfers through the hash time lock protocol. The experiment found that the receiving and paying parties can realize synchronous cross-border transfers (also cross-currency and cross-platform) without trusting the middleman; in most cases, the hash time lock protocol is reliable.

The third phase of the Stella project also tested synchronous cross-border transfers, focusing on the middleman scheme, so the participants include paying banks, receiving banks, and middlemen. There are no specific restrictions on the type of ledger used by each participant. There are five methods for cross-chain transfer: trust line, on-chain custody, simple payment channel, conditional payment channel, and third-party custody. Among them, the first four methods belong to the hash time locking protocol of the cross-ledger protocol. The experiment found that in terms of security, on-chain custody, third-party custody and conditional payment channels all have enforcement mechanisms, which can ensure that the counterparty who fully fulfills their responsibilities during the transaction process will not face the risk of losing principal; liquidity efficiency From high to low, they are trust line, on-chain custody and third-party custody, simple payment channel and conditional payment channel.

The LionRock project of the Hong Kong Monetary Authority and the Inthanon of the Central Bank of Thailand have also conducted simultaneous cross-border transfer experiments. The solution they adopted is called the “corridor network”, which essentially “maps” the central bank digital currencies of two currencies to the same distributed ledger technology system (that is, based on 100% central bank digital currency reserves issued on the “corridor network” Central bank digital currency certificate), which enables the same distributed ledger technology system to support multiple central bank digital currencies. In this way, cross-border transfers occur on a single ledger and do not involve cross-chain operations.

Finally, it needs to be pointed out that whether the wholesale central bank digital currency is applied to Tokenized securities transactions or synchronized cross-border transfers, as long as multiple distributed ledger technology systems are involved, cross-chain is a core issue, and the hash time lock protocol is a core issue. Important but imperfect cross-chain technology. The hash time lock protocol is the basis for conditional payments in a decentralized and trustless environment, and is a key to understanding the programmability of digital currencies. In addition to the application of cryptography, the core of the hash time lock protocol is sequential game. Under the premise that the participants are rational, all the conditional payments in the hash time lock protocol are either completed or not completed, but all participants can get their funds back, so they are atomic. But if the behavior of a participant violates the principle of rationality (such as operational errors), the hash time lock protocol will become invalid. Therefore, the defect of the Hash time lock protocol is not technical, but mechanism design.

Outlook for the central bank’s digital currency

After research and exploration in the past few years, the central bank digital currency design plan of major central banks has gradually converged to the core principles of “cash substitution, based on 100% reserve issuance, following the dual model, adopting the Token paradigm, and not paying interest”. The central bank’s digital currency design plan has not yet reached a consensus on whether to give priority to wholesale or retail.

According to a survey conducted by the Bank for International Settlements, most central banks pay more attention to retail central bank digital currencies. However, because the wholesale central bank digital currency mainly only involves central banks and commercial banks, it is an application at the financial infrastructure level. The targeted scenarios are relatively clear and do not involve complicated monetary and financial issues. Therefore, the wholesale central bank digital currency experiment is The front of retail central bank digital currency. At present, the DC/EP of the People’s Bank of China is a global leader in retail central bank digital currency projects.

Judging from the experiments of representative wholesale central bank digital currency projects, their phased work and experimental conclusions are relatively consistent. First, the wholesale central bank digital currency can support real-time full settlement, and the liquidity saving mechanism can be implemented in a decentralized manner (that is, through smart contracts). Second, the wholesale central bank digital currency can support tokenized securities transactions, and in the distributed ledger technology environment, single-book coupon payment can be realized, but the hash time lock protocol that cross-book coupon payment relies on has certain defects. Third, the logic of the application of wholesale central bank digital currency to synchronous cross-border transfers and the application of tokenized securities transactions. The middleman model is the mainstream cross-chain solution. Receiving and paying parties can realize synchronous cross-border transfers without trusting the middleman. In most cases, the hash time lock protocol is reliable. Finally, in addition to the application of cryptography, the core of the hash time lock protocol is sequential game. The defect of the Hash time lock protocol is not in technology, but in mechanism design.

The retail central bank digital currency also includes the wholesale link, but the wholesale link only targets the central bank’s digital currency issuance and withdrawal, not the central bank’s digital currency application in securities transactions and cross-border transfers. The retail central bank digital currency is expected to achieve cash-like security and the convenience of peer-to-peer payment. The main goal of the central bank to develop retail central bank digital currency is to use the openness of the central bank’s digital currency system to promote financial inclusion. The relationship between retail central bank digital currency and cash usage is more subtle. More and less cash use will increase the necessity of retail central bank digital currencies. The retail central bank digital currency design plan needs to consider the following issues. First, the impact of retail central bank digital currencies on financial stability and monetary policy. Second, the payment and settlement arrangements for retail central bank digital currencies. Third, retail central bank digital currencies need to take into account the three requirements of openness and inclusiveness, limited anonymity, and regulatory compliance. Fourth, how to play the role of the market in the application and promotion of retail central bank digital currency. Fifth, how foreign individuals and institutions hold and use retail central bank digital currencies. None of these questions are universally accepted answers, and further study is needed.

In terms of the path selection of the central bank’s digital currency, what is the priority of the wholesale and retail? This question may not have a unified answer, but the advantage is that the central bank’s digital currency projects of different paths just confirm and complement each other. As the representative wholesale central bank digital currency project gradually completes the test, the retail central bank digital currency will become a research hotspot because it involves complex monetary and financial issues.