Central bank digital currencies (CBDC) and DLT-based payment solutions can significantly shorten securities settlement cycles. Indeed, 89% of financial industry participants expect their local markets to move to T+1 or even T+0 over the next five years precisely because of the adoption of these technologies.
A recent survey of financial market infrastructure (FMI) participants conducted by Citi analysts found that distributed ledger technology (DLT) and central bank digital currencies (CBDC) can accelerate the transition to fast (T+1) and even instant (T+0) settlement cycles.
For instance, the survey found that 87% of respondents highly rate the prospects for CBDCs to shorten settlement cycles by 2026. It’s worth noting that compared to the previous year, support for the initiative to issue CBDCs grew by 21% among securities market participants.
The report points out that outdated technology platforms also need to be replaced to speed up settlements. About 14% of the world’s post-trade systems are simply outdated and can’t support complex settlement structures, thus hindering market development. For new technical solutions to be able to support the latest developments, they must be built on the basis of innovative solutions. DLT perfectly suits these purposes, allowing for a significant expansion of the capabilities of FMI systems. However, the transition to new technical solutions requires, first of all, regulatory changes. Their absence is exactly what’s slowing down global changes in the sector.
According to Citi, approximately 89% of financial industry participants surveyed expect their local markets to move to T+1 or even T+0 within the next five years. Moreover, the transition to faster settlement has already begun in some countries. For example, India has already moved to T+1 in early 2023, causing a “domino effect” in North America. The U.S. and Canada plan to switch to T+1 in May 2024, and Mexico is also likely to move to faster settlements next year.
Analysts processed data from 483 respondents working in 12 different FMI systems.
The Reserve Bank of Australia recently completed the CBDC pilot project, concluding that the digital government currency can improve the efficiency and sustainability of the payment ecosystem.
