Wholesale CBDC: central bank money for settlement between banks

Central bank money already has two forms. Cash is the retail form that anyone can hold. Reserve balances at the central bank are the wholesale form, and only institutions with an account can hold those. A wholesale CBDC changes the technology of the second form, nothing else: the holder stays the same, the claim stays the same, and the ledger it sits on changes.

A retail CBDC is a different proposition, because it gives households a direct claim on the central bank for the first time. That is the digital euro, with its holding limit and its deposit question. The wholesale side has neither, since the institutions that would use it already hold reserves without a cap. The World Economic Forum's comparison of the two forms sets out the same split.

The Eurosystem's exploratory work on new technologies for wholesale settlement ran from May to November 2024 with 64 market participants and more than 50 trials and experiments, some with real central bank money and some with mock money. Banks, market infrastructures and issuers brought their own use cases: bond issuance, repo, payment versus payment in two currencies, and intraday liquidity.

Three solutions were offered, and the number of participants per solution shows where the interest sat. The Bundesbank's trigger solution drew 25 entities from five jurisdictions, the full DLT solution from the Banque de France drew 40 entities from nine, and the Banca d'Italia solution drew five from four.

The exploratory phase ended with two named work streams on different horizons instead of one decision. Pontes is the near-term solution: it links market DLT platforms to the TARGET Services so that euro wholesale transactions settle against central bank money, which makes it the successor to the trigger approach, not a new design. Pontes is listed alongside T2, T2S, TIPS and ECMS in the ECB's own description of the TARGET Services, which is the clearest signal of where it is meant to live.

Appia is the long-term track. It asks what an integrated financial infrastructure built on tokenization would look like if nobody had to bridge to a legacy system, including the international dimension. For a bank the split matters because it sets two different budget horizons: a connection to Pontes is a project, and Appia is a position to follow.

The three designs answer one question in three ways: where does the cash actually sit?

The trigger solution keeps the cash in T2. A DLT component bridges the market ledger and the real-time gross settlement system, so the asset moves on the market ledger and the trigger instructs a normal T2 payment. The TIPS Hash-Link settles the cash on a TIPS-like platform operated by the central bank, with an API gateway between that platform and the market ledger. DL3S goes furthest: the cash account itself lives on a ledger the Eurosystem provides, so both legs settle on distributed infrastructure.

Issuing a bond on a ledger solves half a problem. The security can move in seconds, and the payment still travels the old way, which leaves a gap where one side has delivered and the other has not. Delivery versus payment closes that gap by making both legs conditional on each other, and that only works when both legs reach the same settlement point.

German issuers have run this in practice under the Electronic Securities Act. Finance Loop covers the asset side in tokenized bonds and on-chain capital markets. The cash leg is what the wholesale work supplies, and without it an issuer settles against commercial bank money or a stablecoin and carries the issuer risk that comes with either.

Three forms of digital money compete for the cash leg of a tokenized trade. Central bank money through a wholesale solution has no credit risk and the narrowest access. A tokenized deposit is a claim on a commercial bank, available to that bank's clients, and it keeps the deposit on the bank's balance sheet. A stablecoin used for settlement reaches the widest set of counterparties and brings the issuer's credit and redemption terms with it.

The retail digital euro belongs to none of these. It settles consumer payments, and the Eurosystem runs the two projects on separate tracks with separate decisions.

Who may hold it. A wholesale CBDC is held by banks and other licensed institutions to settle between themselves, in the same role as reserve balances today. A retail CBDC is held by households and businesses and used for everyday payments, which is why it needs holding limits, an offline function and a distribution model through banks.

No. The Eurosystem has run trials and experiments with real central bank money, and it continues the work in two named tracks, Pontes for the near term and Appia for the longer one. Neither is an issuance of a new form of central bank money: Pontes settles against the money that already exists in the TARGET Services. A decision to issue a separate wholesale token is a different step and has not been taken.