Bank for International Settlements – BIS’ Post

What do you think is the most promising avenue to improve cross-border payments? 🔍 Take a sneak peek into one of the key findings from our upcoming Future of payments 2024 report! Central banks pick interlinking faster payments systems as best solution for fixing cross-border payments. • According to OMFIF’s survey of 34 central banks, the interlinking of faster payments systems is the clear favourite as their solution to improve cross-border payments. • Around 70 countries in the world have FPS in operation. The Bank for International Settlements launched Project Nexus to provide a scalable solution for the interlinking of these systems. • The result should be an instant cross-border payments network with lower costs and fewer potential errors. However, barriers remain. Some 44% of survey respondents highlighted the difficulty of harmonising legal and regulatory frameworks between all the participants, while 31% said they had concerns about alignment of technical infrastructure alignment. 📃 🎥 Register for virtual report launch to download report: https://lnkd.in/e3YPPqv6 #crossborderpayments #fastpaymentsystems #reportlaunch #DLT #CBDCs

#fastpayments: design and adoption, from the Bank for International Settlements – BIS Quarterly Review Key takeaways 🔹 Fast payments have achieved mass adoption in some jurisdictions but not in others – with adoption likely depending on the design characteristics of different fast payment systems (FPS). 🔹 Adoption of fast payments tends to be more widespread when the central bank owns the FPS, when non-banks participate and when the number of use cases and cross-border connections is greater. 🔹 These insights can help inform the design and development of FPS and other payment infrastructures.

Good paper in Journal of Financial Markets Infrastructure (JFMI) on 'functional consistency' for a CBDC - i.e. what a CBDC should look like (in a prefect world) and focuses on the Digital Pound https://lnkd.in/g9Nwy4xN Good discussion of various design options (4 in all) across 17 "common operational characteristics" with qualitative analysis of suitability of the options. It should come as no surprise (to those who think about these things) that the least suitable is the design provided by the central bank and the most suitable by a special piece of Financial Markets Infrastructure (FMI). The conclusion says a lot: "Our key contribution to the design space for the digital pound is the insight that no single design option could provide all the key capabilities needed for functional consistency across the digital pound and commercial bank money. Instead, a complete solution would need to combine the suitable design option(s) for delivering each key capability." And "This will, therefore, be a complex design exercise 😉 requiring further analysis and experimentation" The paper does mention some risks arising out of a CBDC, in particular the risk of "fragmentation" of the payment system, but does not discuss the impact of the greatest risks, which are the operational risks to the banks and PSPs in the existing payments system which must re-engineer their existing core systems to accommodate CBDCs. #CBDC #digitalpound

Excellent paper on interoperability of digital money from George Pantelopoulos and Charles-Enguerrand Coste which asks the question - under what circumstances could a tokenised token or a stable-coin be treated as 'money' and after long and elegant arguments conclude (short form) that Tokenised deposits and Collateralised Stablecoins could(?) be used as money provided that three conditions are met "(a) they operate on ledgers than offer a credible mechanism for settlement finality; (b) issuers have a sufficiently strong liquidity and capital positions to comply with their regulatory requirements and to meet their client obligations etc.; and that (c) the underlying payment and settlement technologies are interoperable with other “traditional” payment and settlement technologies" Of these (c) is the toughest as interoperability effectively means access to some form of central bank settlement account, 'how' being the killer question? https://lnkd.in/gW9ZAJG8 But the fundamental question remains: if tokenised deposits and stablecoins have to jump through the most stringent regulatory hoops (to protect users) how exactly will they make money for the issuers, compared to existing financial instruments?

At the Swiss National Bank’s recent event, Bank of England Deputy Governor Sarah Breeden outlined the transformative potential of tokenisation in reshaping the monetary system. Breeden predicts a two-phase revolution: initial efficiencies in payment and settlement structures, followed by a more disruptive phase where traditional intermediary layers are flattened, streamlining post-trade processes. Central banks, including the Bank of England, are exploring the integration of wholesale central bank digital currencies (CBDCs). Noteworthy is the creation of the "omnibus" account, leading to innovations like Fnality which utilize tokenised money. This reflects a broader trend where tokenisation facilitates direct transactions without traditional clearing, significantly reducing costs and enhancing speed. The global central banking community, under initiatives like Project Agora by the Bank for International Settlements – BIS (BIS), is actively researching how tokenised banking can coexist within the current financial architecture, enhancing efficiency through smart contracts and programmability. As institutions like the Financial Conduct Authority (FCA) in the UK and companies like BlackRock move towards tokenising funds and other assets, the financial landscape is set to become more efficient, transparent, and inclusive. This shift towards a digital infrastructure where assets are tokenised and traded in decentralized markets represents a fundamental evolution of financial market infrastructure, promising a future where financial processes are not only faster but also universally accessible.

Very good piece of grown-up, detailed (not blue sky) analysis of various options for implementing a CBDC - free of the usual boosterism https://lnkd.in/gmzW7F9R The conclusion - whatever way you look at it; implementing a CBDC will not be a walk in the park with multiple possible design options (all requiring more or less changes to existing technologies and responsibilities) and all creating different types of risks in critical systems Interestingly, the paper produces a high level risk map (Figure 1) which first shows that none of the options are risk free and some are identified as unsuitable. It also shows that central bank operations is the least suitable option, - #ECB take note? In particular the paper concludes that "Although the CBDC system operated by the Bank of England would provide foundational capabilities (such as payments between digital pound wallets), it could be unsuitable or partially suitable for supporting the specific capabilities for the use cases. This is primarily because providing these specific capabilities could result in users’ personal data becoming available to the Bank of England." Isn't it about time , the industry had a grown up discussion about the risks involved in CBDC implementations https://lnkd.in/g3hAADHV

A group of seven central banks, including the Swiss National Bank, Bank of England, and the Federal Reserve Bank of New York, is collaborating with the Bank for International Settlements to explore the tokenisation of cross-border payments. This project aims to examine how tokenised commercial bank deposits can be seamlessly integrated with tokenised wholesale central bank money within a public-private programmable core financial platform. The primary objective is to enhance the speed and security of international payments while reducing associated costs. We find this initiative intriguing as we share similar goals at Fire; we also strive for faster and more cost-effective international payments. Multi-currency payments are vital for many businesses as they enable seamless cross-border transactions with customers and suppliers located in different countries. Recognising that these transactions can be more intricate and time-consuming than domestic ones, we have created our own solution that provides businesses access to local payment rails for outbound payments in fourteen countries, offering an easier, quicker, and cost-effective approach to international payments. Are you interested in making payouts in foreign currencies? Reach out to us at sales@fire.com to learn more. #paytech #fintech #paymentsolutions #paymentprocessing #paymentsinnovation #multicurrency #FX #crossborderpayments #internationalpayments

"Key takeaways -Fast payments have achieved mass adoption in some jurisdictions but not in others, with adoption likely depending on the design characteristics of different fast payment systems (FPS). -Adoption of fast payments tends to be more widespread when the central bank owns the FPS, when non-banks participate and when the number of use cases and cross-border connections is greater. -These insights can help inform the design and development of FPS and other payment infrastructures" https://lnkd.in/e2H_QtMN BIS Quarterly Review, March 2024 "Fast payment systems are a key innovation, and certain design features shape their adoption by end users."

Maha Al-Saadi's summary of the Bank for International Settlements – BIS paper highlights the increasing relevance of Real World Asset (RWA) tokenization in today's financial landscape. Liquid Tokens' recent engagement in two international RWA tokenization projects—one in real estate and another involving bonds—reflects this trend. Current Trends in RWA Tokenization Growing Demand: The demand for RWA tokenization is primarily driven by institutional investors, private entities, and family offices. However, there is a noticeable shift as more on-chain professionals seek to diversify their portfolios by incorporating hard, on-chain assets into their investment strategies. This diversification is particularly appealing as it allows them to mitigate risks associated with traditional cryptocurrencies. Investor Behavior: There is a distinct difference in how investors perceive various RWA classes. For instance, real estate tokens are viewed differently compared to bonds or securities. This differentiation influences investment decisions and strategies within the RWA market. We are also seeing differences in the perceived value of RWA Tokenisation in emerging & developing markets vs more mature, traditional markets. Future Outlook The landscape of RWA tokenization is expected to expand significantly as more traditional assets transition into digital formats. This shift not only creates new investment opportunities but also enhances the integration of traditional financial systems with blockchain technology. As investor interest continues to grow, particularly from those looking to diversify into tangible assets, the future of RWA tokenization appears promising and dynamic. Thank You Maha Al-Saadi. #RWA #Tokenisation #capitalraise