The Bank for International Settlements (BIS), an international financial institution that acts as a bank for central banks, has released its latest quarterly report, which takes a look at several trends in digital securities and payments.
The report affirms that by tokenizing securities, which is the process of converting assets to digital currency, banks and financial service providers can increase efficiency. According to the report,
“Bech, Hancock, Rice and Wadsworth analyse how tokenisation – or the digital rendition of assets – could improve the clearing and settlement of securities. They conclude that tokenisation might reduce costs and complexity but does not eliminate the risks associated with one party failing to settle transactions. The success of token-based settlement systems could depend on how well they interact with traditional account-based systems.”
Specifically, the 150-page report explores central bank digital currencies (CBDCs) as instruments that can protect user privacy while providing cash-like convenience for peer-to-peer payments. Digital currencies are also capable of reaching people with limited or no access to financial services. The researchers state,
“Central banks are increasingly exploring the desirability and feasibility of establishing their own peer-to-peer systems through digital currencies. Auer and Böhme (2020, in this issue) identify features that a central bank digital currency (CBDC) needs to become a trusted and widely usable medium for retail payments.
[adinserter block="1"]These include scalability, accessibility, convenience, resilience and privacy. Various technical designs differ in how well they support these features; the challenge is to design a CBDC that combines the virtues of a direct claim on the central bank with the convenience offered by intermediaries.”
The analysis points to Bitcoin, Libra, stablecoins and new cryptocurrency platforms as game-changers driving faster, cheaper and safer transactions by linking payers and payees directly. Since wholesale systems usually only involve a small number of parties, innovations are simpler to develop and implement, while networks for high-volume, low-value retail payments, which once lagged, are now rapidly changing and driving convenient, instant transactions that are available 24/7.
You can read the full report here.
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