The Bank for International Settlements (BIS) Innovation Center released a report on Tuesday looking at four projects that looked at central bank digital currency (CBDC) wholesale transfers across borders. The projects have demonstrated the technical feasibility of the transfers, the BRI found, but practical and political questions remain unanswered.
The report looked at the Jura project involving the central banks of Switzerland and France. The Inthanon-LionRock2 project and the ongoing mBridge project, involving currencies in Asia and the Middle East, were also reviewed, as was the Dunbar project, a joint effort by Australian, Malaysian, Singaporean and South African banking authorities.
The projects looked at both cross-border payments, where the payer and the payee reside in different jurisdictions and the payment is made in the currency of the payer’s jurisdiction or another currency, and offshore payments, where the payment takes place between two institutions, neither of which resides in the jurisdiction in which payment is made, although payment is usually made in the currency of that jurisdiction.
All transfers used payment-versus-payment protection, where the transfer in one currency is not finalized until a transaction in another currency has taken place. Intraday transfers and transfers that remained indefinitely on the platform were modelled. They used common platforms, although one project used a common platform with individual subnets.
All projects successfully demonstrated the feasibility of CBDC transfers. They showed that using smart contracts to automate rule enforcement reduces transfer costs. The lack of intermediaries reduced the cost of transfers, with transactions recorded in a single ledger and real-time balances fully visible. At the same time, the project’s platforms were able to maintain different access policies.
Outstanding questions include how distributed ledger technology platforms will interact with existing systems, the challenges that scalability presents, and how resiliency and security can be ensured. In addition, strong legal and governance frameworks will need to be implemented and the economic implications of a multiple CBDC system must be understood, the report states.