One of the most prominent features of cryptocurrency is its ability to enable instant cross-border payments, which has so far attracted an increasing number of territories. Around 105 countries have taken advantage of the technology, some currently in the final stages of launching their central bank digital currency (CBDC), such as China. Others, such as Sweden and Israel, are testing prototypes.
According to an official blog post on Wednesday, the Bank for International Settlements (BIS), known as the Central Bank of Central Banks in other countries, is leading an “Icebreaker” program to explore the efficiency of CBDCs in international remittances and retail payments. The project involves the BIS Innovative Hub, Nordic Centre, together with the three central banks representing Norway, Israel and Sweden.
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BIS, an association of 61 central banks, manages its innovative centers located in different regimes. The platforms conduct research and test new financial tools that can facilitate international money transfers in a better way.
Similarly, the BIS is now exploring central bank digital currency (CBDC) among others. These entities will explore the CBDC until the end of this year, with the final report expected to arrive in the first quarter of 2023.
The new Icebreaker Centre, under the supervision of BIS, will establish the environment for central banks to connect their national proof-of-concept CBDC systems and test the functionality and efficiency of different interconnected CBDCs for cross-border payments.
Obstacles in international payment transfer methods, such as high fees, limited access and lengthy processes, have pushed the Bank for International Payments Innovation Center (BISIH) to test the blockchain-based financial tool.
Likewise, the newly designed architecture that is based on correspondent banking systems will enable instant retail CBDC money transfers beyond countries at cheaper costs than existing methods.
The high cost of international transfer pushes central banks towards CBDCs
The head of Innovative Hub Nordic Centre, Beju Shah, commented on this initiative and added;
This unique experiment will delve into technology, architecture and design choices and trade-offs, and explore related policy issues. These learnings will be invaluable to central banks considering implementing CBDC for cross-border payments.
Notably, the BIS successfully completed a CBDC pilot program last week. This involved the Central Bank of China, Hong Kong, Thailand and the United Arab Emirates. The project with custom distributed ledger technology successfully moved $22 million in forex trading in trials.
Andrew Abir, Deputy Governor of the Central Bank of Israel, stated;
Efficient and accessible cross-border payments are extremely important for a small and open economy like Israel and this was identified as one of the main motivations for a possible digital shekel issuance. The results of the project will be very important in guiding our future work on the digital shekel.
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The year 2022 has seen many countries involved with CBDCs in search of a more efficient and cheaper option to conduct international transactions. While several central banks have reached the final stages of launching their digital fiat, Malaysia, Singapore, Australia, and South Africa have also announced joint testing of CBDCs.
Featured image from Pixabay and chart from TradingView.com