Central Bank Digital Currency (CBDC) is a direct monetary liability on the central bank's balance sheet, unlike commercial digital money, which is considered a liability of a commercial bank to its depositor. The structural distinction between these tools is primarily defined based on authorized users and the type of access. Accordingly, the design of modern payment systems is divided into two major branches: wholesale and retail.

Retail Central Bank Digital Currency (Retail CBDC)

The retail model, known as rCBDC, is digital money available to the general public. Ordinary citizens and small businesses can use this asset, much like digital banknotes, for purchasing goods, services, and peer-to-peer (P2P) transfers. In this model, eliminating the need for a traditional bank account to access sovereign money enhances financial inclusion in regions lacking physical branches. Projects such as the Sand Dollar in the Bahamas and e-CNY in China are tangible examples of this system's implementation.

Wholesale Central Bank Digital Currency (Wholesale CBDC)

In contrast, the wholesale model or wCBDC is only available to selected financial institutions, commercial banks, and authorized settlement entities. The goal of implementing wCBDC is to facilitate interbank settlements, securities transactions via the Delivery versus Payment (DvP) mechanism, and to reduce counterparty risk in cross-border payments. Projects such as Project Helvetia in Switzerland in collaboration with the BIS and Project Jasper in Canada have been specialized pilots for this use case.

Structural Comparison of CBDC Models

Central banks face the challenge of managing accounts for millions of citizens when designing rCBDC. Maintaining the ledger, technical support, and Anti-Money Laundering (AML) compliance require extensive human resources and technological infrastructure. For this reason, different implementation structures have emerged for the connection between the central bank, commercial banks, and users.

Direct Model (One-Tier)

In the direct model, the central bank manages all processes without any intermediary. User accounts are registered directly with the central bank, and distribution and settlement are carried out without the intervention of commercial banks. The main risk of this model is the phenomenon of disintermediation from commercial banks. If citizens withdraw all their balances from commercial banks and convert them into risk-free central bank money, the lending capacity of the banking system will collapse.

Two-Tier or Intermediated Model

In the two-tier structure, which is accepted in most advanced economies, the central bank is solely responsible for issuance, collateralization, and macro-supervision. Currency distribution, user interface, wallet provision, and Know Your Customer (KYC) processes are delegated to commercial banks and authorized fintechs. For example, if a user requests 1,000 units of digital currency, the commercial bank burns the equivalent amount from its reserves held at the central bank and transfers the new token to the user's wallet; in this case, the traditional deposit-taking cycle is preserved.

Hybrid Model

The hybrid model is a middle ground between the two previous approaches; final claims still reside directly on the central bank's balance sheet, but the management of instant payments and the recording of micro-transaction details are maintained by intermediaries in separate ledgers. At specified intervals, the central bank aggregates and finalizes the final settlement of these intermediaries' accounts.

Traditional Real-Time Gross Settlement (RTGS) systems, such as Target2 in the EU or Fedwire in the US, while efficient for centralized settlement, face time constraints and heavy brokerage costs in 24/7, cross-border, and tokenized asset trading. wCBDC redefines these traditional bottlenecks using Distributed Ledger Technology (DLT).

Multilateral Projects and Resolving Brokerage Bottlenecks

In the current system, sending a remittance from a bank in Japan to a bank in the UAE may require several correspondent banks, intermediate currency conversions, and 2 to 3 business days. Projects like Project mBridge, designed in collaboration with the central banks of China, Thailand, the UAE, Hong Kong, and the BIS, have demonstrated that by using a shared DLT platform for wCBDC, settlement time is reduced from several days to a few seconds, and transaction fees are adjusted by up to 50 percent.

Atomic Settlement and Digital Asset Trading

The concept of Atomic Settlement is a capability made possible through wCBDC. In traditional capital markets, the transfer of funds and the transfer of securities ownership do not occur simultaneously, and the gap between trade and settlement (usually T+1 or T+2) increases the risk of counterparty default (Herstatt Risk). By integrating smart contracts, the delivery-versus-payment process is executed automatically and conditionally; either both assets are transferred simultaneously, or the transaction is completely canceled.

Regardless of whether a CBDC is implemented for wholesale or retail use, the type of asset ownership registration is architected on two completely different platforms: Account-based systems and Token-based systems. The choice between these two models determines the level of privacy and infrastructure complexity.

Account-based system

In this structure, money is tied to the identity of an entity or person. To transfer funds, the identities of the sender and receiver must first be verified so that the account balances in the central ledger can be updated. Traditional banking systems operate entirely on this logic. The advantage of this structure is full compliance with anti-money laundering laws and easy recovery of balances in case access is lost; however, anonymity and privacy are minimized in this method.

Token-based system

In the token-based structure, which is similar to cryptocurrencies such as Bitcoin and Ethereum, the validity of the asset itself is verified, not the identity of its holder. The individual who possesses the private key corresponding to the token is recognized as its legal owner. This model enables offline payments, allowing two hardware devices to exchange valid digital tokens without an internet connection. However, the risk of theft or loss of keys rests with the user.

Programmability of Money

One of the key features in various types of CBDCs is the ability to set execution conditions through smart contract logic. This capability allows the central bank or regulatory bodies to set expiration dates for transactions, define consumption incentives in specific sectors, or implement automated tax settlements directly at the protocol layer; a matter that offers high efficiency benefits but simultaneously raises civil concerns regarding intense government surveillance over citizens' assets.