The Bank for International Settlements (BIS) has recently proposed a new form of market infrastructure in the shape of a unified electronic ledger to potentially improve the global financial system. This innovative ledger could combine central bank digital currencies (CBDCs) with tokenized money and assets on a single platform, facilitated by automated smart contracts used by blockchains, such as Ethereum.
According to BIS Economic Adviser and Head of Research Hyun Song Shin, the unification of central bank money, commercial money, and various assets on one platform could create many new opportunities. Currently, the monetary system is riddled with inefficiencies as databases need third-party messaging systems like SWIFT for communication. The introduction of a unified ledger could eliminate these delays and uncertainties.
Proposed benefits of this new financial system include novel methods of securities settlement, which could combine multiple steps into a single transaction. Additionally, tokenized deposits with integrated regulatory checks for wholesale CBDCs could be incorporated. The BIS also suggests that smaller companies could experience a reduction in trade finance costs.
This proposed ledger seems to expand further on a similar concept of a combined platform by the International Monetary Fund (IMF) for CBDCs. The IMF’s vision for a global CBDC platform is one that is more efficient and safer than traditional systems.
However, building a unified ledger for cross-border transactions would require substantial policy harmonization across jurisdictions. While central bankers and economists at the BIS have not settled on specific technical or design aspects for such a ledger, they do not currently plan to use a permissionless blockchain for the project. Shin says that a permissioned blockchain or even a centralized system with strict data confidentiality and cyber resilience controls may be a better fit for the use case.
The next step for this innovative project is for a group of central banks to join forces and work together under a public policy mandate, while involving the private sector for customer-facing activities. This collaborative endeavor between the official and private sectors will likely be a major discussion point moving forward, as outlined by Shin.
To conclude, the creation of a unified ledger integrating central bank money, commercial money, and varying assets on one platform has the potential to be a game-changer in how we view money and handle transactions. However, this ambitious proposal comes with its own challenges, such as policy harmonization between nations and determining the ideal technological approach.
Source: Coindesk
