The International Monetary Fund is exploring an international clearing platform for central bank currencies and a platform for international settlements
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(Kitco News) — In the IMF’s latest quarterly magazine, Tobias Adrian, director of the Monetary and Capital Markets Department, and Tommaso Mancini-Grifoli, division chief in the IMF’s Department of Money and Capital Markets, explore the organization’s logic. Behind the creation of the Central Bank Digital Currency Settlement (CBDC) platform.
According to Adrian and Mancini-Griffoli, the original idea was to create “platforms that offer a marketplace where digital money can be exchanged and sent internationally,” which ultimately means that they will need to support the clearing and settlement of central bank digital currency clearing and settlement transactions between multiple countries.
The post goes on to explain the rationale behind creating a CBDC settlement platform, noting that “cross-border bridges between trust networks are difficult to build because there is no “generally trusted asset or network for settling transactions.”
As global economic conditions deteriorate, banks do not want to trust other organizations as easily as they once were due to the “inherent risk of extending bilateral credit to another bank.” This has resulted in a small group of very large institutions with existing bilateral ties to dominate the banking market.
“It is not surprising that our payments are expensive, slow, and opaque,” said Adrian and Mancini-Griffoli.
According to the newspaper, the solution to this problem is the tokenization of money. This would make the funds “available to anyone with the correct private key and transferable to anyone with access to the same network”.
“Tokens offer a radical transformation that eliminates the need for two-way trusted relationships. Anyone can hold a token, even without a direct relationship with the issuer,” the authors explain.
Examples of tokenized funds mentioned in the paper include stablecoins such as USD Coin (USDC) and CBDCs such as those launched in the Bahamas and Nigeria.
The general purpose of the settlement platform is to help coordinate transactions between individuals, companies and countries, and to provide settlement services on a global scale to ensure timely payments.
“In essence, the platform will bring the funds of each participating institution into a single ledger. Think of this as taking different funds, putting them in a basket that everyone will recognize, and seamlessly exchanging those baskets between participants and across borders.”
There is also the possibility of using the platform’s ledger to write smart contracts, “which are essentially programmable transactions” that help simplify international transactions even more. For example, a company can program a smart contract to “automatically hedge the foreign exchange risk of a transaction or pledge a future incoming payment in a financial contract”.
Adrian and Mancini-Griffoli suggested that the platform could also help simplify things for the private sector by creating “a common settlement platform and a common programming language for writing smart contracts that are compatible with each other.” This could lead to the platform becoming a “strong public-private partnership”.
The next step in the process will be the publication of two papers that “will outline such platforms in the hope of stimulating further discussion on these important topics, which have the potential to shape the future of cross-border payments.”
According to data provided by the Atlantic Council, there are currently 105 countries that are exploring the implementation of CBDCs.
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