Citi Survey Finds Reversal of Thinking on CBDCs
Posted by Colin Lambert. Last updated: September 5, 2024
A new survey from Citi’s Securities Services division finds that investors are backing the commercialisation of distributed ledger technology and digital assets by turning to Stablecoins rather than central bank digital currencies (CBDC).
Citi says that 65% of respondents plan to use non-CBDC options like stablecoins, tokenised deposits, money market funds and digital payment systems to support cash and liquidity requirements for digital securities settlements by 2026, versus 15% who plan to use CBDCs. This is a stark contrast to the previous year where CBDCs were the preferred form of digital money at 52%.
Citi says the whitepaper polled close to 500 market participants encompassing buy- and sell-side institutions for their views on issues within the post-trade industry, it also incorporates qualitative insights from 14 financial market infrastructures (FMIs) and for the first time, includes an in-depth regional view of the industry across Asia Pacific, Europe, North America, and Latin America.
The survey finds that Asia Pacific and Europe are driving the commercialisation of DLT and digital assets with 48% and 46% of respondents respectively actively pursuing initiatives, while 62% of sell-side respondents are focusing their DLT and digital asset efforts on tokenisation of various asset classes, including public and private assets, versus 8% for natively digital security issuance.
Equally, 64% of sell-side respondents expect to use private networks (managed by banks, technology companies and FMIs) as the tokenisation of assets gain momentum. Citi adds, however, on the buy-side, asset managers are focusing on public blockchains for fund tokenisation and the distribution opportunities.
The Full FX View
It is notable that the Citi survey finds diminishing interest in CBDC, and this should sound as a warning to any central banker serious about digital currencies.
The finding must inevitably reflect continued uncertainty over exactly when CBDCs will be available from the major economies, for the third year in a row, we have been treated to upbeat releases over continued experiments by a host of central banks, but in terms of actual product launches, there has been very little to work on.
A fear of CBDC proponents has always been that the concept will be left behind by private interests who can go-to-market much quicker, the big question was ‘how much quicker’? The answer appears to be ‘significantly quicker’ for while we are seeing a host of private stablecoins being issued, in central bank land the buzzwords remain ‘pilot’ and ‘testing’.
Recently, the Bundesbank suggested that a digital euro could exist in 2028 or 2029 and this could, potentially, be the first major digital currency, although the UK will probably target the same time frame. In the US, a digital dollar has tumbled into the political spectrum, meaning very little current progress, and not particularly good prospects of progress down the road.
If and when, the US gets into a digital dollar, it is also likely to be towards the end of the decade and that, frankly, will probably be too late and all the central banks’ work and resources would have been largely wasted. It is clear from surveys such as Citi’s that the financial world wants tokenisation and a digital infrastructure, and if the central banks of the world can’t deliver it quickly enough – and it looks like they can’t – then the financial world will inevitably adopt private stablecoins.
If that does indeed happen, then regrettably, the only path to a world based upon CBDCs will be if multiple private stablecoins blow up. The BIS in particular, has been aggressive in signalling the risks emanating from digital assets, including Stablecoins, but it increasingly looks like the central banks’ central bank is fighting a losing battle.
We are now at the stage where action, or rather live products, speak louder than words – if the central banks want to retain control of their financial systems, they need to move quicker to embrace the new technology.
On the settlements side of the industry, the survey finds that T+1 was more impactful than expected, with 44% of total respondents citing significant impact from T+1 going live, higher than 28% in 2023. Relative to other regions, European respondents were most impacted with 60% indicating significant impact.
Elsewhere, securities lending remains one of the most strongly impacted activities, with 50% of respondents (compared to 33% from last year) seeing the most impact here, followed by funding requirements at 49% (versus 31% last year). Finally, 40% expect real-time, atomic settlement within the next decade, with Asia most bullish at 42%.
“The move to T+1 has taken centre stage in the post-trade industry over the last few years,” observes Okan Pekin, head of securities services at Citi. “Our latest whitepaper – the largest since its inception in 2021 – focuses on the next frontier for the industry which is the growing applicability of technologies. This includes distributed ledger technology and digital assets, and the significant potential for tokenisation to scale. These developments will continue to transform the securities landscape as we continue to move towards shorter settlement cycles across multiple markets worldwide.”
Amit Agarwal, head of custody, securities services, Citi, adds, “The accelerating convergence of traditional and digital assets and operating models reinforces the need for modern platforms, reliable data, and real-time information. We expect to see continued investments into automation, cloud infrastructure, and APIs as well as solutions that integrate with DLT networks.”
