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How Spain’s central bank will be experimenting with wholesale CBDCs

The Bank of Spain (BDE), the central bank of Spain, said it plans to start testing wholesale Central Bank Digital Currencies (CDBCs).

Photo by Max Harlynking / Unsplash

According to the Bank of Spain, the research can assist in establishing how well it can adjust to the "needs and demands of an increasingly digital society.

The plans

The Bank of Spain (BDE), the central bank of Spain, said it plans to start testing wholesale Central Bank Digital Currencies (CDBCs) and is looking for partnership proposals from regional financial and technological organizations.

According to a translated December 5 statement (1), the bank will concentrate on three key areas with the program that seeks to simulate the movement of funds, experiment with the liquidation of financial assets, and analyze the advantages and disadvantages of introducing a wholesale CBDC to its current processes and infrastructure. A CBDC that banks often use to store reserves with a central bank as opposed to a retail or all-purpose CBDC that is accessible to the general public. The program was described as being "unique" to the BDE and having no connection to the work being done in the European Union to study the usage of a digital euro (2). Applications for the initiative must be submitted by January 31, 2023, and prospective participants must fulfill the bank's minimal standards and identify their "economic means" to contribute to the project.

How will this help in the long run?

The research of CBDCs can assist assess how much they can contribute to "adapting to the demands of the community," according to the BDE's justification for launching the initiative. The requirements of ever-more digital culture. Additionally, it was mentioned that CBDCs are being "analyzed and experimented" within a few countries, mostly for retail applications; however, it was also mentioned that more businesses are looking into CBDCs "of a wholesale nature or interbank."

At a central bank conference on December 8, Brad Jones, the Assistant Governor of the Reserve Bank of Australia (RBA) (3), stated that a retail CBDC might cause individuals to leave commercial banks and perhaps replace the Australian currency completely. According to Jones, over 80 financial institutions have proposed use cases for the Australian dollar AUD CBDC experiment that the RBA issued on August 9. However, Jones also cautioned that banks would have liquidity concerns if a CBDC became the preferred source of assets.

The Thailand Bank (4) is also planning to start a pilot program for a retail CBDC by the end of 2022, with a 10,000-person capacity for the testing environment. This occurred after the Bank of China began testing its e-CNY in April 2020. It is currently the most extensively used CBDC in the world and has completed transactions totaling $14 billion during its pilot period.