In the latest press release, Bank for International Settlements (BIS) has guided Central Banks to make key decisions for the use of CBDCs. The banks have to make decisions on the use of these digital currencies from locals and foreign financial organizations. Moreover, the banks also have the evaluate and ensure multinational interoperability, as it will allow the incorporation of CBDCs in the cross-border payment infrastructure.
Previously, the G20 had provided a way forward for Central Banks to enhance their cross-border payment mechanism. At that time, the cost of cross-border payments was incredibly high, and the system lacked transparency and speed. Thus, there was room for more innovation and technological advancement in the sector.
Therefore, to continue with this initiative, the BIS Innovation Hub, the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI), the World Bank, and the International Monetary Fund (IMF) have published a report – Options for access to and interoperability of CBDCs for cross-border payments. The report presented an overview of the use and benefits of CBDCs in cross-border functionality.
Large Scale Collaboration to Ensure Effective Use of CBDCs
The development and incorporation of CBDCs are in their early stages. Therefore, it is essential that international authorities and central banks move along in coordination with each other. It is essential that the infrastructure built for CBDCs ensure flexibility and transparency for long-term sustainability. As a result, the path would become clear for global adoption and use of CBDCs, and different central banks could pursue various CBDC designs.
The BIS and CPMI believe that it would be easier to have a breakthrough from CBDCs if central banks collaborate at an early stage. Each central bank has a unique way of moving forward and exploring the use of CBDCs. They might adopt different designs but each one of them is aiming for a similar goal. Thus, their interoperability could help in improving cross-border payments. It could also allow them to work for non-CBDC payment arrangements.
Moreover, the joint report also evaluates different options in compliance with five criteria. These include do not harm, efficiency, resilience, coexistence and interoperability with non-CBDC systems, and financial inclusion.
Also, the report suggests that there is no possibility of having a universal system that caters to every stakeholder. However, this report will act as a guide for central banks to explore the most beneficial use of CBDCs. It has the potential to transform the cross-border payments model.