RTGS and CBDCs: Can they coexist?
Over half of the countries exploring Central Bank Digital Currencies (CBDCs) already have “Real-Time Gross Settlement (RTGS)” systems. These are funds transfer systems that settle money and security transactions between Financial Institutions on a real-time basis. In a global conversation about whether RTGS and CBDCs are substitutes or complements, 65 countries might already have the answer. As of 2024, 120 countries operate RTGS systems for large-value payments, of which 54% are actively exploring wholesale CBDCs (hereafter referred to as “wCBDCs”, and clearly distinguished from retail CBDCs, or “rCBDCs”) for similar types of payments. These countries may have uncovered a significant advantage in the coexistence of RTGS with wCBDCs. To understand the motivations behind these explorations, we found it helpful to examine how today’s large-value payment systems align with modern economic aspirations.
RTGS vs wCBDCs: today, RTGS wins
Early experimentation with wCBDC (such as the Bank of Canada’s Project Jasper) concluded that RTGS systems outperform DLT-based systems (Distributed Ledger Technology—the underlying network infrastructure supporting wCBDCs) in domestic payments efficiency. These existing RTGS systems operate with well-defined principles and rules intended to ensure settlement finality, enabling them to efficiently and effectively process transactions having a notional value that averages 17 times the GDP of their respective economies.
RTGS systems are the core machinery powering inter-bank monetary operations, but not all RTGS systems are identical. World Bank data suggests that countries contextualize components (such as liquidity management, queuing, and credit risk exposure) to suit their specific needs. The data also suggests that 82% of countries have operational resilience frameworks for RTGS; however, this resilience comes primarily from access being limited to a relatively small group of highly regulated financial market participants. In 62% of countries having RTGS systems, access is only granted to a subset of locally regulated commercial banks.
Growth objectives need functionality beyond RTGS
Given the robustness of RTGS systems, why are countries motivated to explore wCBDCs? We believe the answer lies in the gap between functionality and performance supported by current RTGS designs, and countries’ future economic aspirations.
In particular, there are three economic objectives (voiced by BIS, Citibank, and FSB) that cannot be achieved without substantial revisions to the RTGS structure: a global settlement window, instant settlement, and risk-free settlement for tokenized networks. Table 1 describes how using RTGS to pursue these three objectives is likely to fall short.
Table –1: Misalignment of future aspirations with RTGS design elements
| Economic aspiration | Changes required for RTGS to achieve aspiration | Implementation Challenges |
| Global settlement window | In line with G20 cross-border vision (2027), RTGS systems must be extended to work 24/7. | While four economies have already achieved moving to 24/7, there is not enough data to understand the efforts and costs associated with widespread implementation using the RTGS system alone. Some RTGS systems are unable to operate during the upgrade, leading to spillover impacts (for example, the Fedwire FTS as reported by WEF). Secondly, compliance and reconciliation costs will likely increase as the 24/7 RTGS systems will need extended support. |
| Instant Settlement of securities (T+0)* *T+ is a convention used to denote day(s) from T (the day a transaction took place) until settlement when all parties’ obligations are met. | RTGS systems must enable Central Securities Depositories (CSDs) to handle instantaneous settlement. | While six economies have already moved to T+1, moving to T+0 requires instant settlement at the level of the custodial chain or a mechanism for atomic settlement. Atomic settlement requires simultaneous settlement of both the cash and securities legs of a transaction. This can be achieved with new technologies that include tighter coupling between all involved parties. However, the current infrastructure, in which RTGS and CSDs operate on separate systems, hinders the implementation of atomic settlement. |
| Risk-free settlement for tokenized networks | Integrate RTGS systems to each systemically important tokenized network | Incorporating RTGS into tokenized networks directly will require extensive work on three fronts. Updating legacy systems. Defining operating/ access rules. Developing regulatory frameworks. The BIS believes that a unified ledger on which CBDCs exist with other tokenized assets can be a potential solution. |
Source(s): Authors research, Bank for International Settlements, Citibank, World Economic Forum, Financial Stability Board.
CBDCs increase system flexibility and need RTGS
Certain elements of Table 1, that might be complicated and expensive – if not impossible – to deliver solely via upgrades to existing RTGS systems, are native to wCBDCs. The CPMI, together with the BISIH, the IMF, and the World Bank, suggest that a multilateral platform (such as that explored in Projects mBridge, Jura, and Dunbar – based on wCBDCs) can offer a solution to a global settlement window. More recent experimentation, such as Projects Leonidas and Mandala, use programmability in interbank reconciliation and automate regulatory requirements respectively to demonstrate the additional benefits of such platforms. The two highest priorities for wCBDC experimentation in both high-income and low-income economies have been cross-border payments and tokenization. The native distributed aspects of wCBDCs, along with the ability to program additional features have proven successful in testing new models for cross-border payments.
CBDCs, as tokenized central bank money, can theoretically provide a medium of exchange with in-built risk controls for other tokenized Real-World Assets (RWAs) including but not limited to gold and other precious metals. In fact, having a CBDC reside on the same network as tokenized assets, or being interoperable with it, would enable atomic settlement of tokenized asset trades in central bank money. The UK Regulated Liability Network (UK RLN) and Project Ensemble are investigating this potential application.
As a critical piece of payment infrastructure, RTGS systems must continue to excel in their core functions. However, if the policy motivations exist (such as to potentially encourage innovation) the wCBDCs systems can extend access to settlement in central bank money to non-banking financial institutions (PSPs, Fintech, AISPs, and others) in a manner that aligns with the relevant BIS Principles for Financial Markets Infrastructures (PFMIs).
Today, there is an ever-growing cohort of countries, all confronting the same question about wholesale CBDCs: What innovative capabilities do they bring to the payments ecosystem, that are not achievable with existing RTGS infrastructure?
It is increasingly recognized that successful wCBDCs will require a period of co-existence – which could be long-term – with RTGS systems. Figure – 1 shows a rudimentary set-up of RTGS and CBDCs as complementary infrastructures for achieving the goals listed in Table 1.
Figure –1: RTGS and wCBDC as complimentary infrastructures
The journey from RTGS to CBDCs is more than just a technological upgrade; it is a transformation that could lead to reimagined mechanisms and tools for managing financial stability and payment systems. We have suggested several questions that countries can ask themselves when considering the introduction of a wholesale CBDC. While RTGS systems have long provided a foundational infrastructure for financial markets, wCBDCs are increasingly recognized by central banks as necessary tools for achieving their ambitions with respect to market progression and modernization. As such, countries may strategically opt for a hybrid approach, such as the models suggested here, integrating CBDC infrastructure with enhanced RTGS systems.
