Cross-Border CBDCs: Cheaper and Safer Global Payments?
On Monday, the Bank of International Settlements published a report stating that a cross-border system connecting central bank digital currencies could lead to safer and more affordable global payments.
Based in Basel and working alongside the central banks of Israel, Norway, and Sweden, the BIS Innovation Hub has recently completed “Project Icebreaker.”
This project aims to identify solutions for cross-border transactions based on DLT.
According to Cecilia Skingsley, who leads the BIS Innovation Hub, this project enables central banks to design their consumer-facing digital currencies independently before offering a model for the same CBDC to be used in international payments.
As countries worldwide are competing to develop their own CBDCs, this proposal intends to promote interoperability between national infrastructures, reduce settlement and counterparty risks, and lower the time and cost of transactions.
Project Icebreaker proposes a model that connects domestic retail CBDC systems using a “hub-and-spoke” model. The Icebreaker hub, which consists of foreign exchange providers on both sides, chooses the most economic conversion path for the payer in a cross-border transaction.
According to the report, “FX providers would hold and manage [retail CBDC] liquidity in their operating currencies,” and “the Icebreaker hub, therefore, maintains a live database of the submitted FX rates and returns the best available rate along with the identity of the FX provider to the payer upon request.”
The BIS has been backing the development of central bank digital currencies. “CBDCs replicate existing forms of money in a technologically superior way,” according to general manager Agustin Carstens.
This year, policymakers are focusing on the development of CBDCs, with significant strides being made in countries like Australia and the UK.
Last week, the Biden administration announced it would begin holding regular meetings to discuss a potential digital dollar to supplement the Federal Reserve’s exploration.