• Home
  • Login
  • Register
Currency Insider
  • Home
  • Reading Library
  • CBDC Think Tank
SUBSCRIBE
No Result
View All Result
Currency Insider
  • Home
  • Reading Library
  • CBDC Think Tank
Currency Insider
No Result
View All Result

Can Digital Currencies Reduce Risk in the FX Market?

by CBDC Insider
January 12, 2022
in Business
Reading Time: 3min read
0
Can Digital Currencies Reduce Risk in the FX Market?
Share on FacebookShare on Twitter

In this referenced posting at Bloomberg by an opinion columnist, we have the focus on the FX market with daily settlement transactions in the multi-trillion dollar value range. This immense value exchange is not only for settlement of goods and services across borders but also capital markets and other liquidity requirements necessary to maintain smooth global financial interactions. The author points out that a fair amount of default risk exists and that existing institutions (such as CLS Group Holdings AG) are effective at covering these risks – but only to an extent, as various currencies are not necessarily supported.

‘CLS is good at preventing mishaps in the foreign-exchange market. The trouble is, it handles only 18 major currencies. That means it misses big chunks of trades where emerging-market currencies are swapped against the dollar or the euro. Overall, the protection offered by payment-versus-payment has begun to fray: from 50% in 2013, coverage fell to 40% in 2019, according to the Bank for International Settlements. After removing claims that institutions net bilaterally, $9 trillion of daily obligations are at higher risk of accidents and mistakes. Therein lies a big opportunity for blockchain tokens to prove their utility.’

The discussion gets around to the use of blockchain networks and wholesale CBDCs to speed up settlement and further reduce risk events. We have covered these types of topics in various postings and member research. We also continue to await the Fed’s positioning on CBDCs. The author points out a number of initiatives underway to experiment with wholesale CBDCs made available to banks for these types of settlements. Worth a quick read.

‘But away from public glare, a different kind of blockchain experimentation is under way. Hong Kong’s mBridge, Singapore’s Dunbar and Switzerland’s Jura don’t come up for dinnertime discussions. And that’s just fine because they’re meant to be workhorse projects, not show ponies competing for attention with Dogecoin or the Sandbox. Through these pilot programs, important money centers are trying to speed up and secure cross-border finance. They’re doing it by exploring the use of multiple wholesale CBDCs, which will be available only to financial institutions — and not the general public — over a common platform… Take Jura, which recently passed a crucial test in a near-real setting…

Over three days in November, Natixis SA in France sold tokenized commercial paper worth 200,000 euros ($226,520) to UBS Group AG. The note was then bought by Credit Suisse Group AG, and finally returned to Natixis. All payments took place in two wholesale CBDCs — the euro and the Swiss franc. The use of distributed ledger technology made all transactions “atomic,” meaning that the security and money changed hands — in tokenized forms — without exposing any of the counterparties to a Herstatt limbo where they had parted with something of value without receiving the agreed consideration.’

Read more

RELATED STORIES

Russia’s Gazprombank Recommends Slow CBDC Rollout Fearing Loss of Income

Russia’s Gazprombank Recommends Slow CBDC Rollout Fearing Loss of Income

February 8, 2023
E-Rupee to be Piloted by 5 More Banks in 9 More Cities Soon

E-Rupee to be Piloted by 5 More Banks in 9 More Cities Soon

February 8, 2023
Previous Post

Central Bank of Bahrain Trials JPMorgan’s Blockchain And Token

Next Post

Fed Chairman Promises Crypto, CBDC Report “Soon”

Next Post
Fed Chairman Promises Crypto, CBDC Report “Soon”

Fed Chairman Promises Crypto, CBDC Report “Soon”

© 2022 CBDC Insider

No Result
View All Result
  • Home
  • Map
  • Reading Library
  • CBDC Think Tank
  • Partners
    • DEA
  • Login
  • Register