The head of the club for global central banks has called for the development of wholesale central bank digital currencies (CBDCs) as one of the first steps for the global monetary systems to pivot towards innovating future types of money on digital networks.

In an exclusive interview with RTHK on the sidelines of the HKMA-BIS High-level Conference 2023 in Hong Kong, Agustin Carstens, general manager of the Bank for International Settlements (BIS), noted that such a movement is essential to facilitate real-time cross-border payments and settlements, adding that countries could also consider adopting retail CBDCs.

A wholesale CBDC is a digital currency issued by a central bank and used exclusively by central banks, commercial banks or other financial institutions to settle large-value inter-bank transactions. Retail CBDCs cater to individuals and businesses, facilitating everyday transactions.

Carstens noted that in contrast to CBDCs, stablecoins, a type of cryptocurrency whose value is attached to that of another currency, commodity or financial instrument, are sometimes “not perfect” and not “entirely stable” despite the name.

He said wholesale CBDCs are key to helping central banks transit to the future monetary system.

“It might take many years, but we can end up with a financial system that is integrated and where you can trade seamlessly across assets using just digital facilities," he said.

"It's the same way as today where you can use your mobile phone to do e-commerce, or where you can use your cell phone to call any parts of the world seamlessly,” he explained, adding that a “unified ledger” needs to be created and implemented as the digital infrastructure.

“Now we need to build the digital infrastructure that depends a lot on inter-operability and having the main rails to support that. And the main rails should come by digital money with two representations: one is wholesale CBDC, but also through commercial bank money,” Carstens added.

In its annual report, BIS said that “this ledger would allow for new functionalities, such as smart contracts and composability, and has the potential to integrate the monetary system with other registries of real and financial claims. The guiding principle in developing the unified ledger is the ‘singleness of money’, which means that all forms of money – whether private or public – should exchange at par.”

The veteran Mexican economist pointed out that cybersecurity issues, along with the legal frameworks and institutional endorsements, must be addressed during the trial process, adding that the BIS has also been collaborating with the Hong Kong Monetary Authority (HKMA) to study these areas.

Central banks in Hong Kong and around the world have been introducing CBDCs. The HKMA, the SAR's de facto central bank, began its wholesale CBDC project in 2017 named “LionRock”. It was renamed “Multiple CBDC Bridge (mBridge)” in 2021 after the central banks of China, the United Arab Emirates and Thailand joined the project.

The HKMA also has had its retail CBDC trials with the introduction of e-HKD.

The HKMA-BIS High-Level Conference, which commemorates the 30th anniversary of the HKMA and the 25th anniversary of the BIS representative office for Asia-Pacific, hosted more than 20 incumbent central bank governors and deputy governors, as well as eight former governors, on Monday and Tuesday.