WFE: CBDCs Could Support Tokenized Public Markets But Require Coordinated Industry Overhaul

The World Federation of Exchanges (WFE) has released a comprehensive paper assessing the role of Central Bank Digital Currencies (CBDCs) in transforming public markets. The report concludes that while CBDCs are a necessary enabler of a tokenised ecosystem, their mere existence will not be enough to drive meaningful adoption. Success hinges on industry-wide collaboration, infrastructure upgrades, legal reforms, and realistic assessments of cost-benefit tradeoffs.

According to the WFE, 94% of central banks globally are currently exploring CBDCs, and projections from the World Economic Forum indicate that at least 24 CBDCs could be operational by 2030. The exchange industry believes these digital instruments offer unique advantages for market infrastructure but warns against viewing them as a guaranteed solution.

The WFE concludes that while CBDCs are likely necessary for building a tokenised capital market infrastructure, they are not sufficient. Legal systems can be updated, but technological readiness and high investment costs present longer-term obstacles. CBDCs should not be expected to succeed automatically once introduced. Instead, their utility will depend on whether financial market participants, regulators, and infrastructure providers can commit to the necessary structural and technological shifts.

Nandini Sukumar, Chief Executive Officer at the World Federation of Exchanges, commented, “If the financial ecosystem at large agrees to make the necessary investment to ensure CBDCs are liquid and efficient, laws and regulation must then be updated to appropriately capture this new financial asset. We’ve laid out what is required to achieve this.”

Richard Metcalfe, Head of Regulatory Affairs at the WFE, commented, “The Swiss experience demonstrates the utility of efficient CBDCs to the success of tokenisation, due to the enhanced trust, liquidity, financial inclusion and diversification, associated with CBDCs. Other central banks and policymakers should take heed of this example to generate the economic growth associated with tokenisation.”

A New Type of Central Bank Money

CBDCs are defined in the report as digital payment instruments that are denominated in a national unit of account and are direct liabilities of central banks. They differ from commercial bank deposits, which carry credit and liquidity risk, and from physical cash, which is peer-to-peer but not digitized. CBDCs are expected to function as a third form of money, potentially replacing or complementing both private and public money used in today’s financial systems.

The WFE emphasizes that a wholesale CBDC—designed for use by financial institutions—could enable real-time settlement of interbank transactions, FX trades, and delivery-versus-payment (DvP) transactions. Retail CBDCs, on the other hand, are intended for everyday use by individuals and businesses, but the paper suggests wholesale CBDCs are more likely to be deployed first due to clearer use cases and lower risks.

Potential Benefits to Public Markets

The paper lays out five core benefits CBDCs could provide to public markets:

• Support for Tokenised Asset Settlement: CBDCs could serve as a reliable settlement asset in tokenised ecosystems, reducing reliance on commercial bank money and mitigating counterparty risk. This is consistent with Principle 9 of the CPMI-IOSCO Principles for Financial Market Infrastructure, which advocates central bank money for settlement wherever possible.
• High-Quality Collateral: Unlike commercial bank deposits or government bonds, CBDCs can offer immediate, secure, and risk-free collateral usable in real time. Their nature as central bank liabilities makes them more trustworthy in volatile environments.
• Improved Cross-Border Payments: CBDCs could bypass the traditional correspondent banking model by enabling direct, transparent, and rapid settlement between institutions in different countries. This could reduce cost and complexity for cross-border transactions and enhance global trading activity.
• Better Market Resilience: CBDCs could operate as a secondary payment rail, separate from conventional interbank systems. In the event of disruptions to commercial banking channels, CBDCs could maintain liquidity and ensure continuity in settlement and trading operations.
• Greater Transparency and Traceability: Built on distributed ledger technology (DLT), CBDC transactions could provide auditable trails and enable more efficient regulatory oversight. This could assist in identifying fraud, ensuring compliance, and enhancing market integrity.

Critical Challenges and Tradeoffs

Despite the promise, the WFE identifies numerous challenges that must be addressed before CBDCs can support broad public market adoption:

• Speed and Performance Limitations: DLT systems used for CBDCs are not yet capable of supporting the ultra-low latency requirements of modern equity and derivatives markets. Current performance is insufficient for microsecond-level settlement required in today’s high-frequency environments.
• Unclear Cost-Benefit at Low Usage Hours: One rationale for CBDCs is their 24/7 availability. However, market activity is generally low during off-hours. The paper questions whether it is worth implementing new infrastructure for marginal utility during non-peak periods when extending existing RTGS operating hours could suffice.
• Overlap with Central Clearing: CBDCs can reduce counterparty risk via instant settlement, but central clearing mechanisms already do this while also netting and consolidating trades. As such, the marginal benefit of CBDCs over CCPs is not straightforward and may not justify the investment.
• Legal and Regulatory Barriers: Legislation in many jurisdictions would need to be amended to legally recognize CBDCs as final settlement assets. In cross-border contexts, the lack of regulatory harmonization could lead to disputes and fragmentation. The complexity of aligning regulatory frameworks across countries adds significant friction to global CBDC integration.
• Access and Inclusion Challenges: Smaller firms and new market entrants may find it difficult to meet the technical and compliance demands of integrating with CBDC systems. This could exacerbate market concentration and give large firms an even greater competitive advantage.

Implementation Hurdles

The WFE also outlines four major structural hurdles that must be resolved:

• Interoperability: CBDCs must work seamlessly with existing market infrastructure, including commercial bank money and legacy settlement systems. Without this, they risk creating operational silos and inefficiencies.
• Cost of Integration: Upgrading current systems to support CBDCs would require significant capital expenditure and long transition periods. Disruption during this transition could affect market stability.
• Technology Lock-In Risk: Firms are reluctant to invest in technology that may not gain widespread adoption. But without broad adoption, the value of CBDCs remains limited. This creates a catch-22, where no one moves unless everyone moves.
• Regulatory and Supervisory Adaptation: Regulators must develop new supervisory frameworks capable of overseeing instant settlement, programmable money, and cross-jurisdictional legal exposure. Achieving international coordination on this front remains an open challenge.

The WFE’s position is clear: CBDCs offer critical functionality needed to unlock the full potential of a tokenised financial system. But they must be implemented with caution, backed by solid regulatory frameworks and accompanied by broad industry participation. The cost-benefit equation remains complex, and adoption should be seen as a shared responsibility—not an automatic outcome of issuance.