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Unified Ledger for CBDCs, Tokenized Assets Could Enhance Global Financial System - MELISSA CIUMMEI - “This would be a game-changer in how we think about money and how transactions take place,” said …More
Unified Ledger for CBDCs, Tokenized Assets Could Enhance Global Financial System - MELISSA CIUMMEI - “This would be a game-changer in how we think about money and how transactions take place,” said the Central Bank Group’s Head of Research Hyun Song Shin - A new type of market infrastructure in the form of a unified electronic ledger could enhance the global financial system, argues a Tuesday report by the Bank for International Settlements (BIS).

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This ledger, proposed by the umbrella group for central banks as part of its annual economic report, could combine central bank digital currencies (CBDCs) along with tokenized money and assets on one platform, with the help of automated smart contracts that power transactions on blockchains including Ethereum.

“Bringing together central bank money, commercial money, and different assets on the same platform, all tokenized and interacting, opens up a whole new range of possibilities,” said BIS Economic Adviser and Head of Research Hyun Song Shin in a press release.

The current monetary system is not seamless because databases must be connected by third party messaging systems such as SWIFT that send messages back and forth with participants having incomplete views of actions, the report said. A new unified ledger would eliminate “delays and uncertainty,” the report added.

This envisioned finance system would, according to the BIS, provide new methods for securities settlement combining all individual steps into one transaction and enable tokenized deposits with built-in regulatory checks for wholesale CBDCs. Such a system could also reduce the cost of trade finance for smaller companies, the report said.

The unified ledger proposed by the BIS may exceed in scope a similar combined platform envisioned by the International Monetary Fund (IMF) for CBDCs. Tobias Adrian, director of the IMF’s monetary and capital markets department said in a speech on Monday that a global CBDC platform could be more efficient and safer than traditional platforms.

“We are at the cusp of another major leap in the monetary and financial system, which will have far-reaching consequences for the economy and society at large,“ said Shin. “This would be a game-changer in how we think about money and how transactions take place.”

A unified ledger for cross-border payments would also require significant policy harmonization across jurisdictions, the BIS report said.

Although central bankers and economists at the BIS are not set on the technological and design aspects of such a unified ledger, Shin said the institution is not thinking of using a permissionless blockchain though the mechanism used for effecting the transaction can be decentralized.

“I think the actual choice of technology will really have to be decided for that particular use case,” Shin said at a Monday press briefing on the report. “It could be decentralized, like in a permissioned blockchain, but it doesn't have to be. It could be a centralized system as well where there is a rigorous set of controls on data confidentiality, cyber resilience, and so on.”

The next step would be for a group of central banks to come together to take the project forward under a public policy mandate with the help of the private sector, which would handle most of the customer-facing activities, according to Shin.

“I think it's going to be a very important coming together of both the official sector as well as the private sector and rest assured this is going to be something that we will be discussing going forward,” Shin said.

Sources: 1. Melissa Ciummei: The BIS want to create A parallel… - 2. coindesk.com/…-assets-could-enhance-global-financial-system-bis/ - 3. bis.org/publ/arpdf/ar2023e.pdf

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Unified Ledger for CBDCs, Tokenized Assets Could Enhance Global Financial System.