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CBDCs & Cross-Border Payments: A Potential Solution, But Not Yet

by CBDC Insider
July 13, 2022
in Business
Reading Time: 2min read
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CBDCs & Cross-Border Payments: A Potential Solution, But Not Yet
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This piece is posted in Ledger Insights and provides a brief summary of a just-published 61-page BIS report (from the Committee on Payments and Market Infrastructures) around the topic of CBDCs in cross-border payments. Interested readers can link out through the article and download the paper. The piece’s author goes through some of the reasons that better x-border payments are desirable (and the BIS has been encouraging innovation in the space for a couple of years) and why CBDCs have been considered as one potential solution. However, it seems that CBDCs as a quick fix will not be in the cards.

‘…The report was prepared for the G20 as part of a program to enhance cross border payments, where CBDC is one of 19 building blocks. Almost every suggestion in the paper comes with a caveat, leaving the message that CBDC will not be a silver bullet to address the frictions in cross border payments…

The problem statement is quickly dispensed with. Cross border payments involve high costs, low speed, limited access and insufficient transparency. Why these are such significant issues is taken for granted. And the answers to the ‘why’ question underline the reasons CBDC might not be the best tool, apart from regional applications.’

The summary then goes on to point out of some of the deficiencies to a CBDC global fix, including the need for interoperability and access to central bank accounts for non-banks and governance, to name several. It goes on the state that these things could be fixed, but nothing will be coming in the short term, despite potential benefits. Interested parties can read through. One might see some regional substitutes as a more reasonable goal over the next several years.

‘A quick read of the paper gives the impression of a cross border CBDC being a major opportunity. But to achieve its potential, there would need to be a massive willingness to both collaborate and change the status quo, which leaves more questions than answers…

If central banks don’t resolve the CBDC challenges, the problem will get solved in others ways. Some countries are addressing the remittance issue with bilateral agreements such as between Malaysia and Cambodia. A handful of countries with strong CBDCs and economies might use their own CBDC regionally. Stablecoins could end up getting traction for everyday payments across borders. Both of these raise dollarization issues. And BigTech can ride to the rescue.’

Read more at paymentsjournal.com

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