The future of finance could see a unified electronic ledger merging central bank digital currencies (CBDCs) with other tokenized assets, leading to significant improvements in global financial systems, according to a recent report by the Bank for International Settlements (BIS).
At the heart of this proposed ledger lies the benefits of utilizing automated smart contracts that function on blockchains like Ethereum. This would facilitate seamless transactions, a significant upgrade from the current financial system that relies on third-party messaging systems like SWIFT, which often cause delays and provide an incomplete view of transactions.
The unified ledger, as conceptualized by the BIS, would resolve such inefficiencies by creating a single platform for commercial money, central bank money, and various other assets–all tokenized and interconnecting. BIS’s Head of Research, Hyun Song Shin, has emphasized that this system would streamline securities settlement processes and allow for tokenized deposits with regulatory checks built-in. This could potentially reduce trade finance costs, especially for smaller companies.
Shin explained the benefits of the unified ledger: “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.” Tokenization, he added, would make all of these operations seamless. However, the implementation of this ledger for cross-border payments would necessitate policy harmonization across jurisdictions.
Collaboration between central banks and the private sector is crucial for progressing on this project. The private sector is expected to manage most customer-facing activities: discussions between both sectors are ongoing. BIS expects them to unite under a public policy mandate to propel this initiative forward.
This latest BIS report comes on the heels of another recent study, “Project Rosalind,” which BIS conducted in partnership with the Bank of England (BoE) to explore the potential use cases for retail CBDC systems. The project examined over 30 different applications that a well-designed CBDC could possess, particularly in the realm of money programmability.
Francesca Hopwood Road, Head of the BIS Innovation Hub London Centre, had this to say about the joint CBDC trial with the BoE: “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.”
The prospect of a unified ledger combining CBDCs with other tokenized assets thus offers promising potential for the future of global finance, making transactions more seamless and improving cross-border operations. If central banks and the private sector can come together effectively, the future of finance may indeed be one of greater efficiency and interconnectedness.
Source: Cryptonews
