An interbank settlement layer is the system used by banks to exchange funds and finalize transactions with one another. Traditionally, these layers rely on central banks or large correspondent banks, which can result in delays and operational complexities for cross-border payments. Modernization efforts, including the exploration of distributed ledger technology (DLT) and central bank digital currencies (CBDCs), aim to create more efficient and real-time settlement processes. A more advanced interbank settlement layer reduces counterparty risk and enhances liquidity across the financial system.
Context
The state of interbank settlement layers is a major focus for central banks and financial institutions seeking to improve payment system efficiency and resilience. A key debate involves the suitability of DLT for high-value interbank transactions versus incremental improvements to existing real-time gross settlement (RTGS) systems. Critical future developments include pilot programs for wholesale CBDCs and the implementation of multi-currency payment platforms.
The tokenization of fiat deposits on a permissioned ledger delivers T+0 internal liquidity, significantly enhancing capital velocity and reducing operational float.
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