Bond Market Settlement Time To Be Cut With Digital Currency

Bond Market Settlement Time To Be Cut With Digital Currency

The Reserve Bank of Australia has announced 14 selected use cases and providers in its pilot program with the Digital Finance Cooperative Research Centre (DFCRC) on a research project to explore potential use cases and economic benefits of a central bank digital currency (CBDC) in Australia.

The pilot will involve the participants testing CBDC, a digital version of central bank-issued Australian dollars, using a real claim on the RBA.

ANZ and Commonwealth Bank are two of the 14 banks, fintechs and payments companies participating in the live pilot program over the coming months.

Australian Bond Exchange is a partner in corporate bond settlement and Imperium Markets in high quality liquid assets securities trading.

The Reserve Bank and Imperium will seek through the pilot to prove that bonds and deposits, the main sources of funding for the Australian economy, can be traded and settled instantly.

Also read: CBA Joins The Sub-Debt Party, Bond Pays 6.704%

Brad Jones, Assistant Governor (Financial System) at the RBA said, “We are delighted with the enthusiastic engagement by industry in this important research project. It has also been encouraging that the use case providers that have been invited to participate in the pilot span a wide range of entities in the Australian financial system, from smaller fintechs to large financial institutions. The pilot and broader research study that will be conducted in parallel will serve two ends – it will contribute to hands-on learning by industry, and it will add to policy makers’ understanding of how a CBDC could potentially benefit the Australian financial system and economy.”

Imperium Markets according to the Australian Financial Review will seek to compress the time it takes to settle trades in the $1.5 trillion bond market from two days to zero, removing settlement risks and cutting costs for banks and investors. In essence, this could help shift debt securities settlement from ‘T+2’ days to ‘T+0’.

Imperium Markets has been operating an ASIC-licenced deposit market since 2017 providing banks and investors with a digital experience in dealing directly with each other via a secure, cloud-based platform.

A report on the DFCRC projects is expected to be published around mid-year.