The Bank for International Settlements (BIS) Innovation Center released a report Tuesday examining four projects examining wholesale cross-border transfers of central bank digital currencies (CBDCs). The BIS found that these projects demonstrate the technical feasibility of transfers, but practical and policy questions remain open.
The report considers the Jura project Involving the central banks of Switzerland and France. Project Inthanon – LionRock2 and the ongoing mBridge projectCurrencies involving Asia and the Middle East were also censored, Like Project Dunbar, Working Together Australian, Malaysian, Singaporean and South African banking authorities.
These projects look at cross-border payments where the payer and payee are residents of different jurisdictions and the payment is made in the currency of the payer’s jurisdiction or another currency, and between two institutions For offshore payments, neither is a resident of the jurisdiction in which the payment is made, although the payment is usually made in the currency of that jurisdiction.
Payment-to-payment protection is used for all transfers, and transfers made in one currency are not finalized until the transaction is made in the other. Both intraday transfers and transfers that remain on the platform indefinitely are modeled. They used a common platform, although one project used a common platform with separate subnets.
All projects have successfully demonstrated the feasibility of CBDC transfers. They show that using smart contracts to automate the enforcement of rules can reduce the costs involved in transfers. The lack of intermediaries reduces transfer costs, transactions are recorded in a ledger, and real-time balances are fully visible. At the same time, the project platform is able to maintain different access policies.
Unanswered questions include how the distributed ledger technology platform will interact with existing systems, what are the challenges of scalability, and how to guarantee resiliency and security. Furthermore, the report states that strong legal and governance frameworks must be implemented, and the economic impact of a multi-CBDC system must be understood.