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Digital Dollar Could Streamline Settlements, DTCC Says
The Depository Trust & Clearing Corp. is testing the use of a digital dollar in wholesale transactions, alongside major banks
Updated Nov 30, 2022, 4:34 p.m. Published Nov 30, 2022, 1:00 p.m.
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A digital dollar could streamline settlements to make financial markets more efficient, according to a report published Wednesday by the Depository Trust & Clearing Corp., the financial-infrastructure giant that has a hand in virtually every trade on the more than $40 trillion U.S. stock market.
DTCC said its report is the first-ever private-sector probe of what a central bank digital currency (CBDC) would mean for post-trade financial markets – the infrastructure that processes securities deals after a price has been agreed upon.
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“This new initiative represents the essence of innovation … we should expect digital transformation to reshape markets and market structure in the coming years,” DTCC Managing Director Jennifer Peve said in a statement, referring to a program carried out with the nonprofit Digital Dollar Project and major banks such as Citigroup (C), Bank of America (BAC) and State Street (STT) to test the use of a digital dollar in financial markets.
“A U.S. CBDC should be carefully explored in consultation with key stakeholders across the public and private sectors," Peve said.
A CBDC could help speed up settlement, in part by automating reports the DTCC must send to the Federal Reserve, the DTCC said. It cited evidence that distributed-ledger technology could save billions of dollars per year by simplifying how trades are confirmed and reconciled.
In August, DTCC announced it was processing as many as 160,000 trades per day on a blockchain via Project Ion. The Bank for International Settlements has said as many as nine in 10 of the world’s central banks are looking at a CBDC, although Federal Reserve Chairman Jerome Powell has suggested he is in no rush to issue a digital dollar.
Read more: Big Banks, NY Fed Start to Test Digital Tokens for 'Wholesale' Transactions
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White House crypto advisor Patrick Witt said stablecoins are the “gateway drug” for global finance and that Washington is racing to deliver regulatory clarity.
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The Context: The Executive Director of the President’s Council for Advisors for Digital Assets sat down for an interview with CoinDesk where he said the recent World Economic Forum in Davos served as a stage for the Trump administration to signal its commitment to normalizing digital assets as a permanent asset class. He said:
- The administration aims to strike a balance between traditional financial incumbents and new crypto entrants through a "symbiosis" where they can coexist and compete.
- Consumers benefit from this competition, positioning the current administration as firmly on the side of technological innovation.
- The President renewed a pledge at the event to establish the United States as the undisputed "crypto capital of the world".
Latest Developments: Regulatory movement is accelerating in Washington with key committee markups scheduled for major digital asset legislation.
- The Senate Agriculture Committee is set to mark up its portion of the market structure bill on Thursday, January 29th at 10:30 AM.
- The Senate Banking Committee has postponed its markup, requiring further mediation on issues like stablecoin rewards and ethics.
- Witt expressed confidence that despite these delays, the legislation will eventually be reconciled and brought to the Senate floor.
Reading Between the Lines: Stablecoins are acting as a "gateway drug" for global business leaders who are beginning to grasp the technology's potential—and its threat.
- Witt observed a cycle where traditional players move from a lack of understanding to fear, and finally to incorporating crypto into their own product offerings.
- While some Senate Republicans worry about stablecoins causing deposit flight from community banks, Witt believes a "smooth glide path" into these future technologies is possible with patience and cooperation.
- “Consumers win when there’s choice,” he said, while also acknowledging concerns from Senate Republicans about community banks and financial stability. The administration, he suggested, sees convergence between crypto and traditional finance as inevitable but wants the transition to be smooth rather than destabilizing to all parties.
- U.S. regulators intend to lead the global regulatory conversation, even if the domestic legislative process results in imperfect "directionally accurate" rules.
What Comes Next: Once the primary market structure bill passes, the administration plans to pivot toward a major crypto tax package.
- Witt suggested there is still a window of opportunity to pass additional digital asset legislation this year before midterms dominate the congressional calendar.
- The administration is also monitoring "developing situations" regarding digital assets potentially seized in national security actions abroad, such as in Venezuela.
- Finally, Witt declined to specifically comment on speculation that Venezuelan enforcement actions may have involved seized digital assets, citing national security sensitivities and an evolving situation, but did add, “There’s a number of folks in the national security apparatus engaged,” in regards to how the Maduro regime was financed.
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