A report by the Bank for International Settlements (BIS) has proposed a unified electronic ledger that combines central bank digital currencies (CBDCs) and other tokenized assets, which has the potential to enhance the global financial system. It would leverage automated smart contracts on blockchains like Ethereum to facilitate seamless transactions. The report highlights the current inefficiencies in the financial system, which relies on third-party messaging systems, such as SWIFT, leading to delays and incomplete views of actions. A unified ledger, as envisioned by the BIS, would eliminate these inefficiencies, providing a single platform for central bank money, commercial money, and various assets, all tokenized and interacting.

Benefits of a Unified Ledger

The proposed unified ledger would open up new possibilities by streamlining securities settlement processes and enabling tokenized deposits with built-in regulatory checks. This could reduce trade finance costs, especially for smaller companies. Hyun Song Shin, BIS’s Head of Research, elaborated on the same concept in another video shared by the BIS, saying, “Currently, money and other claims reside in separate databases that are connected through third-party messaging systems, meaning that transactions need to be reconciled separately before being settled with finality.” He added that “tokenization makes all this one seamless operation.”

Challenges and Collaboration

The implementation of a unified ledger for cross-border payments would require significant policy harmonization among jurisdictions. The BIS report also highlighted the need for collaboration between central banks and the private sector to drive this project forward, with the private sector handling most customer-facing activities. Moving forward, the BIS expects central banks and the private sector to come together under a public policy mandate to advance this initiative. Shin emphasized the importance of collaboration between the official and private sectors and indicated that there are ongoing discussions on this topic.

The BIS report on unified CBDC systems came shortly after the same organization, in cooperation with the Bank of England (BoE), published the results of their “Project Rosalind” CBDC trial. The trial examined over 30 different use cases that a well-designed CBDC could have and highlighted the potential CBDCs have for introducing “programmability” to money. A unified electronic ledger combining CBDCs and other tokenized assets could revolutionize the global financial system by providing a single platform for transactions, streamlining securities settlement processes, and reducing trade finance costs. However, it would require significant policy harmonization among jurisdictions and collaboration between central banks and the private sector to drive this initiative forward.

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