The Innovation Center of the Bank for International Settlements (BIS) on Tuesday published a report on four projects that examined cross-border transfers of central Bank digital currencies (CBDC). According to the BIS, the projects have demonstrated the technical feasibility of these transfers. However, practical and political issues would still remain open.
The report dealt with the Jura project, in which the central banks from Switzerland and France are involved. The Inthanon- LionRock2 project and the ongoing mBridge project, involving currencies in Asia and the Middle East, were also considered. The report also highlighted the Dunbar project, a joint project of the banking authorities of Australia, Malaysia, Singapore and South Africa.
The projects dealt with cross-border payments in which payers and payees are located in different countries and the payment is made in the currency of the payer’s country or in another currency. They also dealt with offshore payments, where the payment is made between two institutions, neither of which is located in the country where the payment is made, where the payment is usually made in the currency of that country.
In all transfers, a protection mechanism was used, which is briefly called “payment against payment”. That is, the transfer in one currency is not completed until a transaction is made in another currency. Daily transfers, as well as transfers that remained on the platform for an indefinite period, were tested. Common platforms were used. One project used a common platform with individual subnetworks.
All projects have successfully demonstrated the feasibility of CBDC remittances. They have shown that the use of smart contracts to automate the enforcement of the rules reduces the costs incurred during the transfer. The omission of intermediaries reduces the cost of transfers, since the transactions are recorded in a single general ledger, and the balances are fully visible in real time. At the same time, the project platforms were able to maintain different access policies.
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Among the aspects still to be clarified are the questions of how distributed ledger technology platforms will interact with existing systems, what it looks like with scaling and how reliability and security in general can be ensured. In addition, a sound legal and governance framework must be created and the economic impact of a system with several CBDCs must be researched, according to the report.
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