International Central Bank Group BIS: Global Financial System Could Benefit from Unified CBDCs

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October 23, 2023

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A unified electronic ledger, combining central bank digital currencies (CBDCs) and other tokenized assets, has the potential to enhance the global financial system, according to a report by the Bank for International Settlements (BIS).

The proposed ledger would leverage automated smart contracts on blockchains like Ethereum to facilitate seamless transactions.

The current financial system relies on third-party messaging systems, such as SWIFT, leading to delays and incomplete views of actions.

The unified ledger, as envisioned by the BIS, would eliminate these inefficiencies, providing a single platform for central bank money, commercial money, and various assets—all tokenized and interacting.

The concept of combining smart contracts with tokenization was explained by the BIS in a video posted on Twitter:

The buyer wants to pay when receiving the goods, but the seller prefers to deliver only after being paid. This and other issues plague supply chain financing among small firms. Tokenisation can help solve such dilemmas. #BISAnnualEconReport https://t.co/eKJVwQjXgh pic.twitter.com/euohjpFMFo

— Bank for International Settlements (@BIS_org) June 20, 2023

Tokenization could streamline securities settlement

In a press release, BIS’s Head of Research, Hyun Song Shin, emphasized that a unified ledger would open up new possibilities by streamlining securities settlement processes and enabling tokenized deposits with built-in regulatory checks.

This could reduce trade finance costs, in particular for smaller companies, Shin explained.

The head researcher elaborated on the same concept in another video shared by the BIS, saying:

“Currently, money and other claims reside in separate databases that are connected through third-party messaging systems, meaning that transactions need to be reconciled separately before being settled with finality.”

He added that “tokenization makes all this one seamless operation.”

.@HyunSongShin explains the main elements of the unified ledger and how tokenisation can be a game changer for the monetary system. https://t.co/eKJVwQjpqJ #BISAnnualEconReport pic.twitter.com/KNriAe5bwB

— Bank for International Settlements (@BIS_org) June 20, 2023

Notably, the implementation of a unified ledger for cross-border payments would require significant policy harmonization among jurisdictions.

The BIS report also highlighted the need for collaboration between central banks and the private sector to drive this project forward, with the private sector handling most customer-facing activities.

Moving forward, the BIS expects central banks and the private sector to come together under a public policy mandate to advance this initiative.

Shin emphasized the importance of collaboration between the official and private sectors, and indicated that there are ongoing discussions on this topic.

Follows report on money programmability

The new BIS report on unified CBDC systems came shortly after the same organization, in cooperation with the Bank of England (BoE), published the results of their “Project Rosalind” CBDC trial.

The trial examined over 30 different use cases that a well-designed CBDC could have and highlighted the potential CBDCs have for introducing “programmability” to money.

“We believe that Rosalind can make a significant contribution to how organizations across the globe are thinking about and engaging with the design of retail CBDC systems,” Francesca Hopwood Road, Head of the BIS Innovation Hub London Centre, said about the joint CBDC trial with the BoE.