The Bank of International Settlements (BIS) Innovation Hub released a report Tuesday looking at four projects that examined wholesale central bank digital currency (CBDC) transfers across borders. The projects demonstrated the technical feasibility of the transfers, the BIS found, but practical and policy issues remain outstanding.
The report considered the Jura project involving the central banks of Switzerland and France. Project Inthanon, LionRock2 and the ongoing mBridge project involving currencies in Asia and the Middle East, were also examined, as well as Project Dunbar, a joint effort of Australian, Malaysian, Singaporean and South African banking authorities.
The projects looked at two types of cross-border payments. First was where the payer and a payee are residents of different jurisdictions and payment is made in the currency of the payer’s jurisdiction or in another currency. The second was offshore payments, where payment takes place take place between two institutions, neither of which is resident in the jurisdiction in which the payment is made, although the payment is typically made in the currency of that jurisdiction.
All transfers used payment versus payment protection, where transfer in one currency is not finalized until a transaction in another currency takes place. Both intraday transfers and transfers that remained on the platform indefinitely were modeled. They used common platforms, although one project used a common platform with individual subnetworks.
All the projects successfully demonstrated the feasibility of CBDC transfers. They showed that the use of smart contracts to automate rule enforcement lowers the costs involved in the transfers. The lack of intermediaries lowered the cost of transfers, with transactions being recorded in a single ledger and real-time balances being fully visible. At the same time, the project platforms were able to maintain differing access policies.
Outstanding questions included how distributed ledger technology platforms will interact with existing systems, what challenges scalability presents and how resilience and security can be guaranteed. In addition, robust legal and governance frameworks will have to be implemented and the economic implications of a multiple CBDC system have to be understood, the report stated.