Central Bank Digital Currency (CBDC) is a type of digital currency issued by a central bank that serves as legal tender. With the increasing popularity of digital payments and the rise of cryptocurrencies, central banks around the world have therefore, started are exploring and testing the possibility of issuing their own digital currencies under the name CBDC.
FAQ
What is CBDC?
Central Bank Digital Currency – This is a new form of central bank money, issued by, and a claim against the central bank.
It exists only in a digital form typical on a cryptographic ledger which uses some of the same technology as Blockchain,
which provides benefits over traditional central bank money systems such as centralized accounts.
What is retail CBDC?
Retail CBDC allows for the general public to directly hold CBDC. It is a distinction on the permitted participation to the CBDC network.
It is an analogy to a digital form of physical notes and coins, in that physical notes and coins are currently the only form of
central bank money the general public has access to.
What is wholesale CBDC?
Wholesale CBDC is restricted to a limited set of participants. Typically, only licensed financial institutions.
Similar to the existing RTGS system which can only be accessed by institutions with a commercial bank license.
Transactions are typically between licensed financial institutions, and therefore of a wholesale nature and size.
What are the benefits of CBDC?
CBDC is secured by digital signatures. This means the transaction information is immutable (changing the data invalidates the signatures)
and non-repudiable (once signed, counterparties can prove you agreed to the transaction).
The combination of these properties means the transaction information is extremely secure.
CBDC cannot be transferred without the current owners’ digital signature, providing direct control by the owner.
The digital network provides a single source of truth, which eliminates reconciliation requirements between counterparties.
A transaction message is also the transfer of value, reducing operational complexity and allowing immediate
updates and transaction finality – traditional systems split messaging from updates to the underlying accounting systems.
Why are Central Banks interested in CBDCs ?
Central banks want to understand how the new distributed ledger technologies work to see how those can be applied to real problems.
They want safeguard monetary policy against potential broad use of cryptocurrencies for domestic transactions.
Central Banks see ways in which CBDCs could improve the speed and cost of cross-border payments.
They see there could be benefits in harnessing the idea of programmable payments
What is the status of CBDC?
134 countries representing 98% of global GDP are researching or deploying CBDC systems.
Will Qatar issue a retail CBDC?
The current program is limited to wholesale CBDC only.
It does not cover retail participation. The difference between wholesale and retail is primarily in who can access it.
Therefore, it is possible that the program could be extended to retail in the future.
What are digital securities?
Digital securities are a form of financial securities ownership recorded on the same, or similar, digital network as CBDC.
They allow for efficient settlement of ownership of the securities with a payment in CBDC.
Their implementation provides for a new form of financial market infrastructure (FMI) to be deployed which may improve efficiency
and reduce intermediation of financial markets.
What types of digital securities will QCB investigate?
QCB wCBDC Program will first investigate the issuance of digital government bonds.
These are implemented as digital copies of existing bonds and therefore provide fungibility
between the traditional financial securities infrastructure (CSD) and the new digital form.
Who can participate in the QCB wCBDC Program?
Participation on the first phase of the program is limited to selected banks and is controlled by QCB.
When will the QCB wCBDC system be operational?
The QCB wCBDC program is being delivered during 2024, and the first phase will be concluded before the end of 2024.
What will happen after the first phase of the program?
QCB is conducting an initial experimentation and will evaluate it together with the participant banks before deciding on any further steps.
What technology does the QCB wCBDC program use?
The program will be deployed on Distributed Ledger Technology (DLT) which provides the benefits of blockchain but designed for regulated use cases.
This allows the system to be governed by QCB and to align to Qatar laws and regulations.
What is the monetary policy impact of the Program?
The initial phase is only a simulation and is not conducted with real money.
The program is also designed to be neutral to monetary policy should it be deployed using real money.
Are there any legal restrictions which prevent wholesale CBDC within Qatar?
Currently there are no legal restrictions which would prevent the issuance of a wholesale CBDC in Qatar by QCB.
The regulatory environment is also compatible.
However, to maximise the value of CBDC, especially for cross-border or international use cases,
some changes to align Qatar laws to international best practices would provide cross-jurisdiction
alignment and reduce uncertainty between domestic and international participants.
What is the value of QCB wCBDC?
QCB wCBDC is central bank money in a different form. Therefore, it is denominated in QAR, and is a liability of the central bank.
Its value is similar to any other form of central bank money, i.e. QAR.
How do participant banks obtain CBDC?
Participant banks acquire CBDC by converting traditional QAR in a RTGS settlement account to wCBDC.
The issuance process is managed by QCB. Banks can also convert wCBDC back to RTGS settlement account
funds at any time, providing the RTGS service is open. As wCBDC is denominated in QAR,
the conversion is on a 1:1 basis and therefore has no impact on the banks’ balance sheet. Also, there is no impact on QCB balance sheet.
What benefits can a commercial bank gain from digital currencies?
It can use a wholesale CBDC to settle inter-bank payments and DvP transactions instantly 24x7.
It can act as a distributor of CBDCs minted by the central bank and provide new services based on programmability,
instant settlement and 24x7 operations.
It could issue tokenized deposits backed by fiat money deposits and use them in payment and treasury operations for itself and its clients.
What can commercial banks do with CBDC?
In the first phase of the experimental program, banks can explore two use cases:
1. Payments and transfers in CBDC. Instant, 24x7 bi-lateral settlement on a gross basis.
2. Purchase of digital securities settled with CBDC. Immediate, 24x7 settlement of financial market securities with CBDC.
These are conducted with atomic delivery againts payment transactions which have no settlement risk.
They are executed on a gross transaction basis and require no CCP.
Why have not major economies issued a CBDC?
Some developed market economies have issued a live Wholesale CBDC for settlement of digital securities transactions.
However, some may issue wholesale CBDC for use in cross-border transactions or the digital securities market.
How will AI be used in this project?
The QCB wholesale CBDC project will leverage AI technology to provide a foundational liquidity forecasting model
to help manage the banks' liquidity positions.