Digital $A to slash bond market settlement time to zero

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Imperium Markets says it will use the RBA digital currency pilot to shift T+2 settlement in the $1.5 trillion bond market to T+0, cutting investing costs.

One of the pilots for a new digital Australian dollar 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.14 pilots of a “central bank digital currency” announced last week by the Reserve Bank of Australia

Imperium Markets CEO Stu Burns, left, with chairman Rod Lewis. “The banks customers want these efficiencies as well, and it is important the banks recognise that,” Burns says.Essentially, this pilot could help shift debt securities settlement from “T+2” to “T+0”. It will involve banks buying CBDC through a digital wallet on the Imperium market, and using the digital currency to instantly pay for an asset at the time it is exchanged.

“The banks’ customers want these efficiencies as well, and it is important the banks recognise that,” said Mr Burns, who worked for a decade at Westpac and Commonwealth Bank.One of the attractive features for T+0 for banks would be reducing the amount of capital required to back existing settlement processes. These involve escrow accounts, against which banks hold funds in “exchange settlement accounts” at the RBA that earn no interest.

As the European Central Bank, Sweden’s Riksbank and the Bank of England each move forward with their own studies of CBDC, Australia needs to keep pace or risks losing a proportion of the $750 billion in Australian corporate bonds – and a similar amount of government bonds – to offshore digital markets.

 

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