BIS foresees dramatic cut in cross-border payment costs from CBDCs

The use of central bank digital currencies (CBDCs) built on blockchain could shorten cross-border transaction times from days to seconds and significantly reduce costs. This was stated by the Bank for International Settlements (BIS) following the pilot program.

The common prototype platform for #mCBDC settlements tested by #BISInnovationHub and its partners completed international transfers and foreign exchange operations in seconds, compared with the usual several days https://t.co/OTSYc9I43A pic.twitter.com/bN0Y2gID0a

— Bank for International Settlements (@BIS_org) September 28, 2021

According to the report on the program “Inthanon-LionRock to mBridge: creating a platform with multiple CBDCs for international payments,” digital currencies enabled settlements in seconds, instead of three to five working days, bypassing the network of correspondent banks.

The blockchain platform prototype also demonstrated a potential 50% reduction in payment costs due to lower expenses on “some key components of correspondent banking.”

The results were obtained during the second phase of the mBridge project, Inthanon-LionRock, implemented under BIS auspices. The initial pilot participants were the Hong Kong Monetary Authority and the Bank of Thailand.

In the new phase joined the Digital Currency Institute of the People’s Bank of China and the Central Bank of the United Arab Emirates.

“The prototype is part of our efforts to develop CBDC technology. The project includes experiments with use cases and testing, balanced with governance, policy and legal considerations with an emphasis on cross-border application,” explained the BIS Innovation Hub head Benua Kere.

In the next phase of the project, participants will study the existing limitations of the platform, related to privacy controls, liquidity management, as well as the scalability and performance DLT in processing large volumes of transactions.

The BIS is also developing a platform for cross-border CBDC settlements in collaboration with the central banks of Australia, Malaysia, Singapore and South Africa.

The institution has also taken part in experiments with the use of digital currencies in international settlements between the monetary regulators of France and Switzerland.

In early September, BIScalled on central banks to accelerate CBDC development due to challenges to the traditional banking system from stablecoins and decentralized finance.