The Bank for International Settlements (BIS) has released a chapter of its annual report early. That chapter, on the future of the monetary system, discussed “a new type of financial market infrastructure – a unified ledger.” The chapter was published June 20, one day after the International Monetary Fund (IMF) released a paper describing its “single ledger” cross-border payments concept.
The BIS proposal harnesses central bank digital currency (CBDC) and tokenized assets into “a new type of financial market infrastructure,” that is, the unified ledger, which would be powered by application programming interfaces (APIs). The authors of the proposal critiqued existing financial technology. They said:
“The collapse of crypto and the faltering progress of other tokenisation projects underline a key lesson. The success of tokenisation rests on the foundation of trust provided by central bank money and its capacity to knit together key elements of the financial system.”
One drawback of current tokenization schemes is that they exist in silos, the proposal claimed. A unified ledger would incorporate the ledgers of the counterparties, programmed reconciliation and messaging, enabling faster transactions and atomic (simultaneous) settlement in a “partitioned data environment” where privacy and transparency are controlled.
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A unified ledger system would allow for considerable disintermediation in transactions with securities. Cross-border transactions would require more coordination, assuming an intermediated system with the presence of both central banks and private payment service providers.
BIS general manager Agustín Carstens first mentioned unified ledger technology at the Singapore FinTech Festival in February. Like the IMF “single ledger” introduced a day earlier, the unified ledger uses concepts and technology familiar in the cryptocurrency community. The IMF proposal was met with immediate pushback from the crypto community.
Neither the single ledger nor the BIS unified ledger crucially rely on blockchain technology. Project Rosalind, undertaken by the BIS and the Bank of England, also depended on API technology. The full BIS annual report is due out on June 25.
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