The Fed’s Digital Dollar Will Remake The Capital Markets

The Fed’s Digital Dollar Will Remake The Capital Markets

From instant trade settlement, to real-time AML transparency and reporting, the Fed’s CBDC / “Digital Dollar” will drive efficiency, enhance transparency and reduce privacy.

“We are the Federal Reserve and we are here to help” (translation: run for cover). The Federal Reserve will have rolled out its CBDC – the Digital Dollar – by 2025 in our view. The Fed won’t want to fall far behind China’s CBDC effort. Here are a few of our thoughts as to how this may unfold within the Capital Markets:

  • Large Financial Institutions will build distributed ledge technology (“DLT”) / Blockchain-based networks specifically designed to process the Digital Dollar and other CBDCs (perhaps this capability may be added to existing DLT networks that today process crypto currencies). These DLT networks may be proprietary built by individual companies (think of Goldman, Fidelity, PayPal and Square building proprietary networks) as well as joint efforts built and co-owned by smaller Financial Institutions.
  • DLT networks trading Digital Dollars will make trade compliance, trade execution and trade settlement far more efficient and reporting more robust and timely whether it be commercial reporting (calculating performance, segmentation analysis, portfolio construction, etc.), or regulatory reporting (AML, NAV, Tax, etc.).
  • Large Financial Institutions may “encourage” institutional and retail investors to trade in Digital Dollars so that the FIs may enjoy the cost efficiencies as compared to legacy trading networks. Perhaps FIs will pass on “rebates” to clients in return for allocating order flow to new DLT networks and Digital Dollar transactions vs. legacy trading networks and legacy processes.
  • Companies that are well-positioned to capture Digital Dollar order flow include traditional capital markets players as well as new comers and potential new entrants that are looking for greater wallet share when it comes to electronic transactions and e-commerce. We list a few names here in alphabetical order:
    • Amazon
    • Apple (Apple Pay)
    • BNY Mellon
    • Citigroup
    • eBay
    • Facebook
    • Fidelity
    • Goldman Sachs
    • Google (G-Pay)
    • ICE
    • Intuit
    • J.P. Morgan
    • Mastercard
    • Nasdaq
    • PayPal
    • Shopify
    • Square
    • SS&C Technologies
    • State Street Bank
    • Stripe
    • Visa
    • Walmart
    • Wells Fargo

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