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Swiss-based institution Bank of International Settlement (BIS) released a new report dedicated to the future of payment infrastructure where they examine new payment systems including tokenization and central bank digital currencies (CBDC).
According to BIS Head of Research Hyun Song Shin “the pace of change and potential for disruption” prompts policymakers to examine the form of payment systems as their priority.
Based on the study, tokenizing securities on a distributed ledger could make the settlement cycle simpler and faster. In short, it’s more efficient. Ironically, traders prefer slow settlement cycles.
“Market participants might not want to move to shorter settlement cycles, as this could increase liquidity requirements and give market-makers less time to source the cash or securities needed for settlement,” the report read.
The risk and reward remain a mystery as the researchers continue to examine the future of securitization. The team realized that there were plenty of short-term problems that needed resolution to successfully implement the distributed ledger technology (DLT). Also, DLT and smart contracts are yet to be proven in the clearing and settlement world. However, tokenized systems have the potential to interoperate with account-based systems.
Meanwhile, there are many questions about CBDC. BIS did not provide a definitive answer about the future of CBDC and it stressed that there is no point in developing a digital currency if it has no advantage over the current payment systems which is true.
Just recently, the Central Bank of Canada announced that it has no plans to issue a CBDC because they did not see the need to do so. Deputy Governor Timothy Lane said in his speech titled “Money and Payments in the Digital Age” that cash works and it is enough for them at the present.
“Canadians will continue to be well-served by the existing payment ecosystem, provided it is modernized and remains fit for purpose,” Lane said.
