A new report from banking giant Citi suggests central bank digital currencies (CBDCs) are gaining traction among financial institutions as a tool to shorten settlement cycles in the coming years.
The 2022 edition of Citi’s Securities Services Evolution white paper surveyed 483 firms on the role of emerging technologies in speeding up post-trade settlement to T+1 (within 24 hours) or faster.
The survey found 87% see CBDCs as a viable option for enabling quicker settlements by 2026, a 21% year-over-year increase. With moves towards T+1 underway in markets like India and Canada, CBDCs are increasingly viewed as instrumental.
“Recent cross-border multi-bank experiments are now providing detailed insights into how central bank funding can be operationalized in a digital context, both internally and across entire markets,” noted the report.
However, regulatory uncertainty, interoperability challenges, and a lack of knowledge remain obstacles to mainstream CBDC adoption over the next five years.
Of the respondents, institutional investors, banks, and asset managers have the greatest capacity to deliver market-wide CBDC solutions and infrastructure. The report envisions even faster sub-24-hour settlement timelines taking hold by 2028.
“Mainstreaming of DLTs, shorter settlement cycles, digital cash-focused funding mechanisms, and the removal of core banking systems” are expected changes by 2028, according to the report.
With governments accelerating CBDC development worldwide, central bank digital money looks positioned to profoundly impact post-trade processes and risk management. Citi’s report highlights growing confidence in CBDCs’ potential among private financial firms.