The Innovation Center of the Bank for International Settlements (BIS) on Tuesday released a report reviewing four projects that have explored wholesale cross-border digital currency central bank transfers (CBDCs). The projects have demonstrated the technical feasibility of the transfer, as determined by BIS, but practical and political issues remain unresolved.
The report considers the Jura project with the participation of the central banks of Switzerland and France. Also studied were the Inthanon-LionRock2 project and the ongoing mBridge project involving currencies in Asia and the Middle East, as well as the Dunbar project, a joint project between the banking authorities of Australia, Malaysia, Singapore and South Africa.
The projects considered both cross-border payments, when the payer and the payee are residents of different jurisdictions, and the payment is made in the currency of the payer’s jurisdiction or in another currency, and offshore payments, when the payment occurs between two institutions. , neither of which is a resident of the jurisdiction in which the payment is made, although the payment is usually made in the currency of that jurisdiction.
All transfers used payment versus payment protection, where a transfer in one currency is not completed until a transaction is made in another currency. Both intraday transfers and transfers that remained on the platform for an indefinite period were simulated. They used common platforms, although one project used a common platform with separate subnets.
All projects have successfully demonstrated the transferability of CBDC. They showed that the use of smart contracts to automate rule enforcement reduces the costs associated with transmission. The absence of intermediaries has reduced the cost of transfers, the transaction is recorded in a single register, and the balances are fully visible in real time. At the same time, the project platforms could support different access policies.
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Unresolved questions include how distributed ledger technology platforms will interact with existing systems, what challenges arise when scaling, and how fault tolerance and security can be guaranteed. In addition, the report states that a sound legal and governance framework will need to be put in place, as well as an understanding of the economic implications of a multi-CBDC system.