Interoperable Settlement Rails Crucial for Institutional Finance, Lynq CEO Warns

Lynq CEO Jerald David says that institutional finance needs interoperable settlement systems capable of moving cash and collateral 24/7 as firms adopt various forms of digital money. He notes that the Bank of England's latest digital pound experiment gives an early indication of how institutional markets may use multiple forms of digital money instead of choosing one option.

David expects that a single form of digital money will not replace all others and that different types, such as stablecoins, tokenized deposits, tokenized money market funds, central bank digital currencies (CBDCs), and traditional bank money, will have various roles depending on the counterparty, jurisdiction, and type of transaction.

The Bank of England's Digital Pound Lab is testing a multi-currency payment system that uses a stablecoin and simulated digital pounds to handle separate parts of a cross-border trade-finance payment. The experiment allows an exporter to receive an advance through a stablecoin payment system while a UK importer completes the final settlement in simulated digital pounds.

David argues that separate settlement rails can restrict institutional capital, as institutions may have enough capital overall but not necessarily in the required form, market, or jurisdiction when a transaction must settle. He notes that this problem extends beyond converting one digital currency into another and requires a way to move value between different forms of money.

The Lynq CEO emphasizes that the difference between trading hours and settlement hours has become more important for institutions as digital asset markets trade without closing, while bank transfers and parts of the traditional settlement system remain subject to operating schedules and daily cut-off times. He notes that Wells Fargo is developing products intended to extend settlement beyond normal hours.