#11: CBDCs – the Potential to Transform Liquidity Management?

14 Jul

19th July 2023

With:

| Richard Dzina (The Clearing House)

| Stephen Wojciechowicz (Bank of New York Mellon)

In Session #11, Richard Dzina (The Clearing House) and Stephen Wojciechowicz (BNY Mellon) join FNA to tackle the systemic implications of CBDC on market liquidity. While much of the public debate focuses on payments, the real transformation is happening in the "Back Office" of the global economy. The discussion centers on the Regulated Liability Network (RLN) model and how it provides a roadmap for resilience by using distributed architectures to settle liabilities across banks. Our guests analyze the "liquidity-speed paradox": while real-time settlement reduces risk, it also eliminates the "breathing room" provided by traditional delayed settlement, potentially requiring banks to hold significantly more collateral. They explore how programmable features (smart contracts) can solve this by automating interest payments and collateral movements, turning "passive" money into an active, self-optimizing asset.

The session covered:

The Treasury Shift: Why 24/7/365 CBDC settlement requires commercial banks to move from "end-of-day" liquidity management to real-time, automated monitoring.
RLN & Resilience: Exploring the Regulated Liability Network as a "shared ledger" model that maintains the role of commercial bank money while achieving CBDC-like efficiency.
The Collateral Crunch: Assessing the risk of "settlement finality" in a real-time world—how to manage liquidity when every second counts and netting windows disappear.
Embedded Programmability: The transformative potential of smart contracts to automate repo markets, margin calls, and interest-bearing CBDC balances.
FMI as Integrator: How existing financial market infrastructures must evolve to act as the "connective tissue" between legacy systems and new digital currency rails.
Simulation & Stress Testing: Why FMIs must use agent-based modeling to simulate "Liquidity Sinks" and participant behavior before a CBDC is ever integrated into the live market.

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