The Committee on Payments and Market Infrastructures (CPMI) has published a report on wholesale digital tokens. The report focuses on how digital tokens might be used to effect settlement in wholesale transactions, replacing existing systems where such transactions are settled by updating balances in account records on a centralized register. The CPMI confirms that any wholesale digital token arrangement would need to comply with the applicable regulatory requirements, including, if the arrangement is systemically important, the Principles for Financial Market Infrastructure.
According to the CPMI, many of the token arrangements that are currently being developed involve tokens as wholesale settlement assets that represent a claim related to a pool of assets or funds backed by commercial or central bank deposits denominated in a sovereign currency. The CPMI considers that, for a token to provide a safe or efficient alternative to traditional settlement systems, clarity is needed on the nature of rights or claims embedded in the wholesale digital token and on how the asset or funds backing the token relates to such right or claim. However, the CPMI highlights that, even where a wholesale token is backed by central bank deposits, the token-holder's claims will not be equivalent to central bank money. This situation results in additional credit and liquidity risk arising. In addition, the report discusses how developers of these arrangements will need to consider how the design features may affect the ability of tokens to improve on the safety and efficiency of traditional settlement systems. For example, consideration would need to be given to the issuance mechanism, rules for access to the token, transfer mechanism, as well as the appropriate governance, risk management and transparency issues involved.
Furthermore, the CPMI is of the view that developers of a wholesale digital token arrangement that could impact financial stability or monetary policy will need to address the concerns of the relevant central bank(s).
