Bank for International Settlements (BIS) is trying to grapple with the trends adopting tomorrow’s payment infrastructure which include tokenized securities, central bank digital currencies, cross-border payments and peer to peer innovations, expressing which the bank just have launched a quarterly report. What BIS thinks is peer to peer arrangements links payers and payees directly and minimizes the number of intermediaries.
It comes from BIS researchers’ expectation that traders are attuned to the sluggish settlement cycles which is already in place is seeming paradoxical conclusion. Tokenizing securities on a distributed ledger may streamline the settlement cycle making it more efficient. On the other hand, shorter settlement cycles could increase liquidity requirements and give market-makers less time to source the cash or securities needed for settlement and that why market participants may not want to move to shorter settlement cycles. Their DLT-based system will cut off intermediaries and increase in efficiency but the Basel-based institution’s team found a number of problems that need resolution before any meaningful DLT securities system is implemented. More operational risks are expected to come in front because DLT and smart contracts are yet to be proven.
Central Bank Digital Currencies (CBDC)
There are so many questions about CBDCs, one of the bigger stories in banking circles. BIS says consumers will not use a CBDC less convenient than cash or credit card, and retailers will not tolerate a system unable to run on ‘’peak demand.’’ And in this area DLT-based CBDC can falter. According to BIS consensus mechanisms often slow down transaction throughput spelling potential trouble for a retail-facing system that must shoulder millions of often small-dollar payments a day. It is also said that wholesale systems may fit easier into some of DLT’s consensus limitations. Decentralization cuts off risk of a central point of failures but it raise the possibility of new vulnerabilities.
BIS chief Carstens said the world should consider the impact radically new and different backed payment infrastructure offers for example Libra. BIS framed it’s recently launched ‘’Innovation Hub’’, which will work with bankers and monetary policy works to develop frameworks around digital innovations, emphasizing the need for a global response. Innovation Hub will be tasked with digging into the questions posed by digital innovations across payments, settlements, money and more