BIS publishes paper on tokenised securities, CBDCs, P2P payments

According to researchers these are the trends that may shape tomorrow’s payments infrastructure.

Tokenising securities on a distributed ledger may streamline the settlement cycle, however 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 said.

Once those are settled, yet more questions on issues like operational risks remain, according to CoinDesk. That’s because DLT and smart contracts are ‘yet to be proven’ in the world of clearing and settlement, according to the report.

One of the bigger stories in banking circles is digital money. The bank has plenty of questions around CBDCs: Should they be retail or wholesale focused? Account-based or token-based? Ought they run on a distributed ledger, a centralised model, a hybrid system? Are CBDCs necessary at all?

BIS clarifies that there is no point developing digital money that lacks advantages over the existing payment systems. Consumers will not use a CBDC less convenient than cash or credit card, and retailers will not tolerate a system unable to run on ‘peak demand’.

Decentralisation eliminates the risk of a central point of failure, but it also raises the possibility of new vulnerabilities. The BIS researchers note that existing trials have ‘not always been encouraging’, with some central banks stating publicly their fears that DLT is not the salve some make it out to be. Against this, though, some banks are indeed pushing forward with DLT-based CBDC trials.

Essentially, the world needs to consider the impact that radically new and different backend payment infrastructure offers. BIS emphasised the need for a global response/action towards these trends and then framed its recently launched ‘Innovation Hub’ as the clearinghouse from which such a response might rise.