A new Bank for International Settlements (BIS) study has shown that almost a third of central banks surveyed are considering making central bank digital currencies (CBDCs) interoperable by forming multiple-CBDC (m-CBDC) arrangements. More central banks leaning in this direction will open yet another window for a few economies e.g. China, which has so far made their intentions to participate in a m-CBDC arrangement known in the past, to build on its edge as a major economy at the forefront of the global CBDC race.
According to the BIS, m-CBDC arrangements focus squarely on designing national CBDCs with access frameworks and interlinkage options to facilitate efficient cross-currency payments. “This could support the broader global efforts to improve cross-border payments of which such arrangements would form one part,” BIS says, instead of having to create a new unit of account that competes with domestic currencies. It adds that some central banks are already collaborating with one another on projects and studies on the use of CBDCs to facilitate cross-border payments.
How CBDCs are likely to work across borders has been an issue of contention so far among countries with several factors such as data privacy and foreign exchange being major concerns. No harmonized guideline has been introduced on CBDCs thus far on a global level even though the likes of China seems to be ahead of several other countries in terms of the digital currency issuance.
Just recently, the G7 group met to indicate that they want CBDCs, among other things, to be able to “enhance cross-border payments” and “operate within appropriate privacy frameworks and minimise spillovers” hence plan to come up with common principles for state-backed digital currencies. Also, the BIS study shows that central banks are concerned about currency substitution by a foreign CBDC considering risks from facilitation of tax avoidance and loss of oversight by domestic authorities.