Financial markets around the world are experiencing a paradigm shift as distributed ledger technology and tokenized assets are challenging traditional business models and market infrastructure providers. As the world progresses towards a digital asset future, private and public institutions are continuing to explore benefits and implications across various digital asset use cases. Digital currencies are being introduced to streamline traditional payment networks and provide greater transparency across retail, wholesale, and cross border transactions.
In collaboration with The Digital Dollar Project (DDP) and support from Accenture, our new white paper, Exploring Post-Trade Security Settlement with a U.S. Central Bank Digital Currency, outlines key findings from the Securities Settlement Pilot (formerly known as Project Lithium), the first initiative to explore how tokenized securities and a wholesale central bank digital currency (CBDC) could operate within the U.S. settlement infrastructure leveraging distributed ledger technology (DLT).
Pilot Launch Lookback
Earlier this year, DTCC joined the DDP to launch the first pilot in the program. It is the U.S. capital market industry's first exploration of U.S. CBDC in post-trade infrastructure by private sector participants. DTCC, in collaboration with DDP and support from Accenture, designed and built a prototype to settle tokenized securities with simulated CBDC tokens to understand feasibility, design requirements, and functional challenges, and market opportunities.
Experimental Approach
The pilot focused on exploring the implications of using a U.S.-issued CBDC in DTCC’s post-trade services. DTCC and DDP experimented with CBDC technology in a research development environment without production implications. The team designed and developed a CBDC network that builds upon the work of previous initiatives coordinated by a range of market participants, including private sector players and central banks, which explored the use of a CBDC in wholesale securities settlements.
Related: CBDCs are Coming. Markets Should Adjust Now
Outcome Overview
As detailed in the paper, the pilot enhanced the DDP’s understanding of CBDC, outlined network connectivity and design choices, identified potential business outcomes and laid out potential opportunities for further exploration of a CBDC settlement use case. An overview of the key outcomes is below:
- CBDC Design Approach: Refined the DDP's CBDC champion model requirements to support U.S. post-trade settlement
- Network Connectivity & Design Choices: Identified design considerations based on the implemented logical architecture
- Business Implications: Found operational benefits and tradeoffs of a potential CBDC settlement system
Future Considerations
The pilot demonstrated how a CBDC could be used by industry participants and DTCC in the context of securities settlement. It also identified important questions and helped establish future areas of exploration for a U.S. CBDC, including:
- Further measure business value for industry participants
- Identify digital ecosystem impacts
- Explore ecosystem adoption requirements
- Refine technology requirements
As the U.S. dollar is an integral part of the U.S. and global economy, a digital dollar should be carefully explored in consultation with key stakeholders in both the public and private sectors. This pilot with DTCC was the first practical exploration of the use of CBDC technology in U.S. wholesale financial markets through direct engagement with market participants. The results of the pilot will hopefully inform private sector participants and U.S. policymakers of the advantages, requirements, and implications of this new technology paradigm.