AFME/DPF: fostering interoperability and standardization with wholesale CBDCs

The Digital Pound Foundation (DPF) and Association for Financial Markets in Europe (AFME) published observations and comments from a jointly-hosted roundtable that took place in March 2023 and included industry specialists and external observers.

The roundtable discussion focused on applications and use cases for wholesale CBDCs in financial markets and, from a broad and holistic perspective, the problems CBDCs are seeking to resolve. At a high level, these include:

  • New settlement infrastructure for digital forms of traditional money, using blockchain deposits or deposit tokens
  • A new mechanism for wholesale cross-border payments
  • Seamless connectivity/interoperability with RTGS systems
  • Lower cost access and participation
  • Improved payments/value transfer security per fraud and cyber risks

Participants agreed on the need for absolute legal certainty in the creation of digital assets and the resolution of fundamental legal questions underpinned currently by old legislation (which was not designed with digital asset – or digital asset owner – validation in mind). As such, it is critical to define and agree on operating and regulatory policy, and to understand exactly what types of agreements are needed in and between jurisdictions to support digital, low-cost, near-instantaneous payment value transfer.

“We must be emphatically clear which hoops must be jumped through for certainty of digital cash transfer and settlement in order to be confident that a decentralized infrastructure is sufficiently robust and risk-resilient.”

Asset fungibility, and auto conversion of CBDCs, digital coins and traditional assets within a value transfer mechanism is crucial: not only will different countries and regions have their own CBDCs, but potentially, these will sit alongside bank-issued stablecoins (e.g. UBS or JP Morgan coin) and conventional fiat currency.  Achieving T+0 settlement in this context will require significant changes to existing regimes, KYC/AML requirements, asset metadata collection and management and so on.

In addition to the potential for increasing liquidity (freeing up working capital/cash trapped in global payments cycles) CBDCs and associated digital payment systems could reduce settlement risk by operating on a 24/7 basis i.e. not being restricted to Central Banks “opening hours”.

“As we cross the threshold from proof of concept to real traction, this joint event marks the beginning of a broader engagement in the wholesale financial markets space which we hope to build upon in the coming months and years,” said Jannah Patchay, DPF executive director and policy lead.

“AFME looks forward to continuing to engage with both our members as well as the broader industry to consider the key viable use cases for wholesale Central Bank Digital Currencies (CBDCs), and the potential impact to capital markets and financial services more broadly,” said Elise Soucie, associate director at AFME.

Read the full report


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