Central bank digital currencies can slash cross border payment time
By Alun John
HONG KONG (Reuters) – Central bank digital currencies (CBDCs) can slash the time needed for cross border payments to seconds from days and cut costs, the Bank of International Settlements (BIS) said, citing a pilot scheme to test the digital forms of fiat currencies.
According to a BIS report Tuesday, cross-border transactions were possible in as little as three to five hours instead of taking up to five days. The CBDCs helped avoid complicated arrangements where payments must be passed through multiple banks.
It also stated that CBDCs helped to reduce costs up to half off.
It is common for global banks without a network to channel payments in one country via local banks.
The process is becoming complicated and lengthy as banks cut ties to potentially dangerous partners, and pull out of certain markets for compliance or cost reasons.
Benedicte Nolens is the head of BIS Innovation Hub Hong Kong Centre. She stated, “Enabling cross-border wholesale payments that are faster and more affordable, to all jurisdictions that do not benefit from an active correspondent banking system, would have a positive impact on trade and economic development.”
CBDCs are being explored by many central banks and governments around the globe. Some, like China https://www.reuters.com/technology/china-setting-pace-central-bank-digital-currency-japan-ex-regulator-endo-2021-06-29, are testing retail-focused CBDCs designed to replicate cash in circulation, while others are considering using so-called wholesale CBDCs to improve the internal workings of their financial systems or cross border financial flows.
BIS-supported pilot scheme that initially included the Hong Kong and Thai central banking systems used blockchain to coordinate transaction data among participants in the payments chain.
According to BIS’s report, it helped cut costs up to 50% by decreasing liquidity management and compliance, as well as foreign exchange operations.
Since then, the project is known as “mBridge” and has been expanded to include the central banks of China and UAE.
Next steps include the “development of the prototype into production-ready solutions”, according to the report.
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