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The ability of digital currencies to transfer funds directly from one party to another on a peer-to-peer basis should remove the traditional role of the correspondent bank as both the provider of a service and an enabler of payments in the settlement process.
According to a BNY Mellon report ‘Innovation in payments – a spotlight on digital currencies’ published earlier this year, however, not every counterparty will be a direct participant of a P2P system, and the correspondent banking model is more likely to pivot to banks becoming a gateway to a P2P system.
The outlook is further muddied by the different models proposed by the Bank for International Settlements for setting up wholesale central bank digital currencies (CBDCs).
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While the model known as the compatible CBDC system closely resembles today's cross-border payment procedure (whereby banks must agree on messaging standards, cryptographic techniques and data requirements, for example) the multi-CBDC system would essentially mean the creation of a new multilateral payment platform.
“These models don’t have to be perceived as a threat,” says Marc Recker, head of product institutional cash management at Deutsche Bank.