The Bank for International Settlements (BIS) concluded its Project Icebreaker initiative, exploring cross-border transactions for Central Bank Digital Currency (CBDC). Their report released today suggests a “hub-and-spoke” model could reduce settlement risk and complete cross-border transactions within seconds.
The BIS Innovation Hub Nordic Centre collaborated with Norway, Israel, and Sweden’s central banks to test linking domestic CBDCs systems. The report highlights that complex maintenance and cybersecurity risks could arise from retail CBDC systems requiring specific network and infrastructure configurations to communicate with other systems without a hub-and-spoke approach.
The BIS report prepares for a cross-border payment system if Israel, Norway, and Sweden issue their digital currencies. The BIS facilitated $22 million of cross-border transactions in a month during a successful CBDC pilot with central banks from Hong Kong, Thailand, China, and the United Arab Emirates in October 2022.
CBDC adoption is accelerating globally, with the Central Bank of the Bahamas issuing the first central bank-issued CBDC, the Sand Dollar. China has made significant progress in digital currency trials, distributing millions of digital yuan during the Lunar New Year holidays.
Potential Benefits And Challenges Of Using CBDC In International Payments
The BIS report studied CBDCs in international payments, analyzing retail and remittance payment use cases. CBDCs could offer faster, cheaper, and more efficient cross-border transactions, but cybersecurity risks and standardization are potential challenges.
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The BIS’s Project Icebreaker initiative is a significant step towards exploring CBDC potential and laying cross-border payment groundwork. Additionally, Its findings will inform central banks worldwide and ensure safe and efficient CBDC implementation.
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