Retail vs. Wholesale CBDC: The Difference in Central Bank Digital Currencies
illya.sh
illya.sh
There's two types of central bank digital currencies (CBDC): retail CBDC and wholesale CBDC
1. retail CBDC = used for ordinary transactions. digital version of the cash
2. wholesale CBDC = used for interbank/financial institution settlement. tokenized central bank reserves
Ever use a debit card to buy something?
It could easily be made faster and more efficient --- but some people are scared it will mean the end of the world.
CBDCs are development phase
The only thing missing is an official "central bank" endorsement that would lead to a faster and more efficient process.
Banks also oppose this also because it would cut them out of a large chunk of the financial market.
I'm not sure what you mean by "We've been buying stuff without using currency for decades". Unless you're purchasing with gold - you're likely using currencies
It's all data stored and manipulated by computers anyway. The only difference is how the data is routed and stored.
To reply to
> Both of these have been in place for a very long time.
> Ever use a debit card to buy something?
No they haven't. Debit card balance isn't a deposit at the central bank - it's commercial bank money (i.e. a liability of the commercial bank, not the central bank).
Retail CBDC is digital central bank money held by the public (retail). So it would be the public holding a central bank liability
The public and central banks ultimately hold all the liability anyway. As far as settlements are concerned, commercial banks are just intermediaries that could easily be replaced by automation.
All the liability on what? Central bank liability is both a legal, and a financial concept
Commercial banks can be easily replaced? How so?
End user deposit accounts held at the central bank [1] and narrow banking [2]. The Fed does not like these ideas though [3] [4], which is why their policy is designed to support commercial banks.
The funny part is the Tether become the narrow bank outside of the traditional financial system; they hold mostly only US treasuries, at nation state scale [5]. Does it matter they don't have a master account at the Fed? I argue no, considering treasuries are backed by the full faith and credit of the US government, and that debt is backstopped by the Fed.
Consumer deposits are unnecessary for lending; credit can be issued by entities who issue debt into the bond market for capital.
[1] https://rooseveltinstitute.org/wp-content/uploads/2021/08/GD...
[2] https://en.wikipedia.org/wiki/Narrow_banking
[3] https://www.chicagobooth.edu/review/safest-bank-fed-wont-san...
[4] https://southerncalifornialawreview.com/2024/03/11/squeezed-...
[5] Tether is now the 17th largest holder of US debt - https://news.ycombinator.com/item?id=45747578 - October 2025
(jqpabc123 mentions in a sibling comment FedNow instant rails, which makes moving value trivial for a few pennies per transaction, up to $10M at a time)
The Fed doesn't like these ideas because commercial banks don't like these ideas.
They're both part of the same club that they prefer to perpetuate.
And how would such a restructuring help to improve the current model?
And very importantly - what is the practical next step? You can't make all of the U.S. dollar a direct liability of the central bank overnight without collapsing the global financial and geopolitical structure?
Fraud. Banking liability rolls uphill. When a commercial bank fails, who picks up the pieces?
Commercial banks can be easily replaced? How so?
https://www.frbservices.org/financial-services/fednow
For transaction settlement, commercial banks are really just intermediaries. They swap numbers all day and at the end of the day, they tell the Fed's computers how to settle things among banks.
FedNow let's the Fed's computer settle things directly on the fly, 24/7/365. It's really a CBDC implementation that cuts commercial banks into the mix mainly for the sake of tradition.
Commercial banks are credit, lending, deposit-taking and risk management institutions. FedNow focuses on settlement. Replacing commercial banks would require public access to central bank accounts, which isn't allowed under virtually all jurisdictions.
Regarding fraud - automation won't remove fraud. Banks themselves heavily rely on automation.
Regarding bank failure handling - same question as above
Stablecoins enable this without central bank and commercial bank infrastructure permissioning (the biggest US banks own Early Warning Systems [Zelle] and The Clearing House [RTP]; the Federal Reserve was instructed by Congress to build FedNow so these largest banks could not block smaller banks from financial infra access). Instant payment rails, value backed by sovereign debt, sovereign debt backed by central banks.
Is your argument that we cannot live without fractional reserve lending enabled by commercial banks? Because private credit and ABS based credit is an example to the contrary. Consumer or commercial deposits are unnecessary to extend credit. Fraud risk is straightforward to manage, using either in house or vendor technologies, within the scope of deposit and banking product fraud detection and mitigation.
Matt Levine: Stablecoins Make Banking Narrower - https://www.bloomberg.com/opinion/newsletters/2025-10-02/sta... | https://archive.today/9jJmE - October 2nd, 2025
Private Credit Wants to Be the Bank - https://www.bloomberg.com/opinion/articles/2024-12-19/privat... | https://archive.today/MO2kf - December 19th, 2024