Finance

New GFMA Paper by BCG and Clifford Chance Outlines Benefits and Challenges of Wholesale Central Bank Digital Currencies

The legal status of wCBDCs would have to be firmly established, guaranteeing wCBDCs as fungible to fiat currencies, before they became widely used

BOSTON, Over 70% of central banks have begun exploring the possibility of introducing central bank digital currencies (CBDCs).

A new GFMA 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.

“wCBDCs are designed to facilitate wholesale market transactions, with direct access to the wCBDCs limited to regulated financial institutions and PSPs. We and our partners recommend following the current two-tier structure which places central banks at the foundation of the payment system, while assigning end-user-facing activities to financial institutions and other PSPs,” said Roy Choudhury, managing director & partner, BCG.

About Boston Consulting Group

Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.
Our diverse, global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change. BCG delivers solutions through leading-edge management consulting, technology and design, and corporate and digital ventures. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, fueled by the goal of helping our clients thrive and enabling them to make the world a better place.

About GFMA

GFMA represents the common interests of the world’s leading financial and capital market participants to provide a collective voice on matters that support global capital markets. It also advocates on policies to address risks that have no borders, regional market developments that impact global capital markets, and policies that promote efficient cross-border capital flows to end users. GFMA efficiently connects savers and borrowers, thereby benefiting broader global economic growth. The Association for Financial Markets in Europe (AFME) located in London, Brussels, and Frankfurt; the Asia Securities Industry & Financial Markets Association (ASIFMA) in Hong Kong; and the Securities Industry and Financial Markets Association (SIFMA) in New York and Washington are, respectively, the European, Asian, and North American members of GFMA.

This article was shared with Prittle Prattle News as a Press Release by PRNewswire

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