DTCC Unveils US CBDC Clearing and Settlement Project
Posted by Colin Lambert. Last updated: April 13, 2022
As the US government advances its analysis into the risks and benefits of a Central Bank Digital Currency (CBDC), The Depository Trust & Clearing Corporation (DTCC) announced the development of what it says is the first prototype to explore how a CBDC might operate in the US clearing and settlement infrastructure leveraging distributed ledger technology (DLT).
The prototype, known as Project Lithium, will measure the benefits of a CBDC and inform the future design of the firm’s clearing and settlement offerings. It will also explore how a CBDC could enable atomic settlement, a conditional settlement that occurs if delivery and payment are both received at the same time.
As the markets evolve and become more digitalised, DTCC says the use of printed US currency continues to decline while the adoption of tokenised securities grows at a rapid pace.
The prototype is being developed in partnership with The Digital Dollar Project (DDP) a non-profit organisation, and aims to demonstrate the direct, bilateral settlement of cash tokens between participants in real-time delivery-versus-payment (DVP) settlement. The pilot will also identify how it can leverage DTCC’s clearing and settlement capabilities to fully realise the potential benefits of a CBDC. These include, according to DTCC, reduced counterparty risk and trapped liquidity; increased capital efficiency; a more efficient, automated workflow; the guarantee that cash and securities are delivered; and added transparency to regulators.
“DTCC has for several years been experimenting, engaging and leading the conversation around the digitalisation of financial markets, and Project Lithium represents the next major step in our exploration of DLT, tokenisation and other emerging technologies,” says Jennifer Peve, managing director, head of strategy and business development at DTCC. “Project Lithium will lay the groundwork for the financial community to better evaluate the implications of a CBDC across the trade lifecycle, as interest in this style of funding continues to grow.”
Christopher Giancarlo, co-founder and executive chairman of The Digital Dollar Project and former chairman of the CFTC, adds, “A CBDC could improve time and cost efficiencies, provide broader accessibility to central bank money and payments, and all while emulating the features of physical cash in an increasingly digital world. We thank DTCC for their partnership in the first of a series of pilots and their deep commitment to helping the financial community better understand and realise the potential advantages and challenges of a US-backed digital currency.”
Meanwhile, David Treat, co-director of the DDP and global metaverse and blockchain lead at Accenture, which initially funded the project, says, “Project Lithium is another key facet in the modernisation of core capital markets infrastructure. The direct exchange of tokenised assets for Central Bank Digital Currency provides a tremendous basis for simplification, efficiency, and a new product and services innovation frontier.”