Tobias Adrian, a financial counselor at the International Monetary Fund (IMF), has proposed an innovative concept to revolutionize the traditional financial landscape with a global equivalent of a central bank digital currency (CBDC) system. Addressing pressing issues such as high costs, slow processing, and lack of transparency in cross-border payments, Adrian’s idea centers on the use of a trusted global ledger to accommodate transactions involving CBDCs.
This trusted ledger would act as a secure electronic system, where property rights could be recorded and traded amongst participants at a moment’s notice. Such a system paves the way for smooth, efficient financial transactions on an international scale, supporting governmental financial institutions and private firms alike.
Coined by Adrian as the “XC” platform, this concept consists of three core layers: settlement, programming financial contracts, and managing information. By seamlessly settling transactions across multiple fiat currencies on a single platform, the XC would minimize friction, delays, and complications in exchanging funds. Remarkably, this can be done without introducing a new settlement asset like a middleware cryptocurrency, such as XRP.
In lieu of creating a digital token, the IMF’s XC platforms would consist of distinct and standardized digital representations for fiat currencies, allowing for a flexible interchangeability of funds. This approach not only promotes seamless transactions but also maintains the central banks’ control over reserve allocation.
Another revolutionary aspect of the XC platform is the automation of contracts, which allows for simultaneous currency swaps in response to specific price conditions. This eliminates the need for parties to reveal sensitive information to a market maker when placing orders.
As countries retain control over limits on foreign currency holdings and transactions, the onus of ensuring compliance checks and proper management of information lies with the XC platforms themselves. Such platforms are expected to separate settlement and non-settlement services, providing a clear division of responsibilities. Moreover, these platforms can also benefit domestic financial systems by enabling the creation of domestic equivalents of the XC platforms, powered by individual CBDCs.
However, Adrian acknowledges that there is more work to be done in testing the necessary technology and establishing legal and governance frameworks. It’s important to note that CBDC systems typically run on private blockchains controlled by government institutions, which differ from the permissionless decentralized networks employed by cryptocurrencies like bitcoin and ether.
All in all, the development of such a global ledger system for CBDCs could fundamentally change the way cross-border payments and transactions are carried out, opening up new possibilities for the future of finance and technology.
Source: Blockworks
