The Role of Digital Money in Capital Markets

Introduction

Money fuels markets. The money systems that support our capital markets have been built and refi ned over decades. They facilitate the movement of commercial bank and central bank money across banks, payment networks, clearinghouses, and central securities depositories to orchestrate reliable and effi cient financial transactions.

Digital money—including tokenized commercial bank money, stablecoins, and wholesale central bank digital currencies (wCBDCs)—introduces new technological effi ciencies that can further improve capital markets transactions. They provide innovative technological solutions to enhance automation, reduce risk, and enable continuous and near-instant settlement. Each form of digital money has different economic and legal characteristics, operates on different infrastructures, and presents different opportunities and constraints for capital markets use cases.

Banks are in the business of money, which underpins economic growth. Capital markets are responsible for the effi cient allocation of capital between providers (e.g., investors) and borrowers (e.g., entrepreneurs). These global relationships are facilitated by fi nancial institution intermediaries, which play a critical role in making capital markets work. Efficient capital markets allow capital users to receive lower cost funding over time while allowing investors to identify opportunities to deploy their capital. Ultimately, this powers the economy.

Global Financial Markets Association (GFMA)1 members are responsible for, and facilitate, the vast majority of global capital markets activity: issuing and distributing securities to match companies with investors to raise capital, facilitating securities transactions, and enabling risk management across the global economy. They are at the forefront of innovating—and building on—these forms of digital money to improve and expand client services, lower risks, and reduce costs.

This report describes how different forms of digital money are being used in wholesale capital markets today and their expected trajectory for the near future. The analysis focuses on three use cases that represent active areas of development: cash leg settlement for securities transactions, repurchase agreement (repo) and securities fi nance, and derivatives margin.