06 March 2023

Call for Proposal – Payments Tokens: a route to optimising liquidity management?

The SWIFT Institute invites proposals for research on the Payments Tokens to understand how they could unlock value and free liquidity.

In typical payment flows, Nostro accounts use credit lines to fund accounts. With the adoption of blockchain based transactions through payment tokens, there could be a material reduction in the time to process and complete payments and therefore liquidity costs could also be reduced through lower duration of holding liquidity and so borrowing from those credit lines. In a similar vein, the need to hold FX reserves could also be reduced. A countervailing factor however could be the potential fragmentation of liquidity between existing forms of fiat currencies and payment tokens / CBDCs, depending on level of fungibility. Furthermore, faster transaction speed combined with gross settlement could reduce the efficiency of liquidity management if netting mechanisms were not available for payment token / CBDC transactions. The overall net impact of payment tokens and CBDCs on the efficiency of liquidity management is therefore as yet unclear.

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