Central Bank Digital Currencies: A Global Capital Markets Perspective | AFME

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Central Bank Digital Currencies: A Global Capital Markets Perspective
22 Feb 2022
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New GFMA Paper by BCG and Clifford Chance Outlines Benefits and Challenges of Wholesale Central Bank Digital Currencies

Paper Encourages Collaboration between Public and Private Institutions and Outlines Opportunities, Challenges, and Questions Concerning the Design, Issuance, Legal Status, and Use Cases of wCBDCs

BOSTON, February 22, 2022— Over 70% of central banks have begun exploring the possibility of introducing central bank digital currencies (CBDCs). A new paper, commissioned by the Global Financial Markets Association (GFMA) from Boston Consulting Group (BCG) and Clifford Chance LLP, identifies the GFMA’s critical considerations for the success of potential CBDCs in wholesale markets (wCBDCs).

Entitled Central Bank Digital Currencies: A Global Capital Markets Perspective, the paper is based on research, as well as extensive interviews conducted with contributing member firms and market participants with particular expertise relevant to CBDCs, during the fourth quarter of 2021.

The authors’ recommendations stress that:

  • Central banks in collaboration with the private sector should continue to explore the role that wCBDCs can play in driving innovation and efficiencies in wholesale markets.
  • Central banks should take a measured approach in the introduction of wCBDCs and the timeline should be cautious to mitigate any potential transition risk impacting safety and soundness, and financial stability.
  • wCBDCs are expected to operate alongside legacy instruments and systems, and not to replace them. It is therefore important for wCBDCs to be interoperable with the broader financial market ecosystem.
  • The use of sandboxes, proof of concept, dialogue with market participants, and pilot programs based on specific use cases will test the application of wCBDCs and help identify the impact on capital markets.
  • After sufficient analysis of lessons learned, financial institutions and regulators should define a transition period that is reflective of the risks and opportunities, and an effective implementation.

The paper outlines the opportunities, challenges, and questions concerning the design, issuance, and legal status of wCBDCs, while introducing use cases to provide a framework for continuing a constructive conversation.