BIS Issues Paper On CBDCs, Tokenised Securities And P2P Payments

Javeria  |  Mar 2, 2020

Bank for International Settlements (BIS) issued a white paper focusing primarily on central bank digital currencies, tokenised securities, peer-to-peer innovations and cross-border payments.

According to the white paper, tokenising securities on a distributed ledger can make the settlement cycle more efficient and effective. The following can increase the liquidity requirements as well as decrease the time taken to source the needed securities or cash by market-makers which is why many market participants will not want it.

Even though all of these is settled, other questions on issues such as operational risks persist, according to the reports. This is why DLT and smart contracts need to be proven in the segment first.

One of the popular topic ongoing in banking circles is a digital currency. Presently, the bank is trying to clear out doubts regarding CBDCs such as if they should be wholesale or retails focused, whether it should be token-based or account-based, should run on a hybrid system, distributed ledger or a centralised model. One of the biggest questions that arise is that if CBDC is necessary at all or not?

Are CBDCs Necessary At All?

Bank for International Settlements explained that there is no point of developing a digital payment system which lacks in basis features that already exists. Why anyone would be interested in using a payment system less convenient from the existing one that includes credit cards and cash, BIS noted. The bank further clarifies that even retailers would not tolerate a system which won’t run on peak demand.

Decentralisation does reduce the risk associated with a central point of failure but also increases the chances of various new vulnerabilities. According to the BIS researchers, the trials have not always been encouraging, and because of that, many banks have publicly expressed their fears regarding DLT. However, some others are indeed in support with the new technology and going forward with the research.

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