BIS calls for global cooperation on CBDCs to improve cross-border payments

By Gaia Lamperti

“For central bank digital currencies (CBDCs) to improve cross-border payments, central banks must make fundamental decisions on foreign access and how CBDCs connect across jurisdictions. These decisions must be made at an early stage and international cooperation and coordination are prerequisites.”

This is what states a recently released report by the Bank for International Settlements (BIS) in partnership with the BIS Innovation Hub, the International Monetary Fund (IMF) and the World Bank. The report focuses on ways to access to CBDCs –  digital currencies issued by a central bank – and their interoperability that could improve non-CBDC payment arrangements. too.

“Sending money across the border to a relative or a friend can be costly, slow and opaque, and many people across the world cannot access such payment services to tackle this. In 2020, the countries that form the G20 launched an ambitious program to enhance cross-border payments. This program has 19 building blocks and the focus of one of these building blocks is on Central Bank Digital Currencies or CBDC, which is generally defined as central bank money in a digital form in contrast to, for instance, physical notes and coins,” explained Cecilia Skingsley, Chair of the Future of Payments Working Group and Head of the BIS Innovation Hub.

The 61-page publication, titled ‘Options for access to and interoperability of CBDCs for cross-border payments’, was also endorsed by the intergovernmental group G20 as part of a road map to improve cross-border payments and foster international monetary and financial cooperation.

For Peter Woeste Christensen, Director at capital markets technology and advisory firm LPA, this is in line with expectations for this technology: “CBDCs come in two flavours: domestic, which are retail-oriented and wholesale, which are medium to high-value payments. The ability to interconnect these different ecosystems is the cornerstone for creating a common framework that works for both domestic and international transactions.”

Using blockchain technology, CBDCs have the ability to lower costs and raise the accessibility of a centralized currency and currently, over 90 countries have active CBDC projects ranging from the research stage to the official launch, according to the Atlantic Council’s CBDC tracker.

With this report, BIS asked for countries to cooperate at the early stages of CBDC design in order to make it easier for systems to work across borders. Indeed, while each jurisdiction will have its own legal framework, many design features for CBDCs are still undecided, allowing central banks to start with a “clean slate”. The likely benefits that could derive from this approach are efficiency, resilience and financial inclusion.

“Further down the line, this framework should eventually support a broad number of use cases such as providing banking services to the “underbanked” in the developing world; supporting the repatriation of funds from employees back to their communities and country of origin; efficient and secure payments of both goods and services; and finally, enable SMEs to sell and provide services and goods in a global economy,” Christensen added. “We welcome the efforts from BIS, IMF and World Bank to create operability between all forms of money and payments infrastructure as collaboration in this space is crucial for businesses to see real value in the future.”