With international collaboration, central bank digital currencies (CBDCs) could potentially improve cross-border payments, generating a host of economic benefits, suggests a new report from global policymakers to the G20.
A joint report from the Committee on Payments and Market Infrastructures (CPMI), the BIS Innovation Hub, the International Monetary Fund (IMF) and the World Bank examined the possibility of using CBDCs to enhance the efficiency of cross-border payments.
While a number of countries are exploring the possible launch of CBDCs, no major central bank has yet committed to issuing a CBDC — and there are still a range of design and operational issues to be resolved.
In the meantime, the report examines a number of both practical and theoretical issues with using CBDCs for cross-border transactions. Those include how a payment infrastructure could be set up as well as possible financial stability risks that could arise.
One advantage of using CBDCs for cross-border payments is the opportunity to start with a “clean slate,” the report said.
Among other things, this would enable participants to “address the frictions inherent in current cross-border payment systems and arrangements from the outset.”
The report concludes that international cooperation on the design of CBDCs is essential for enhancing cross-border payments systems.
“Facilitating international payments with CBDCs can be achieved through different degrees of integration and cooperation, ranging from basic compatibility with common standards to the establishment of international payment infrastructures,” the report said, citing the need for multilateral collaboration and interoperability between CBDCs.
“It is necessary to continue deepening the analysis on CBDC designs, especially regarding options for access and interlinking of CBDCs, including interoperability with non-CBDC payment infrastructures and arrangements,” the report added.
The report noted that the G20 has made enhancing cross-border payments a priority, as, “Faster, cheaper, more transparent and more inclusive cross-border payment services would deliver widespread benefits for citizens and economies worldwide, supporting economic growth, international trade, global development and financial inclusion.”
“It is crucially important that central banks take the cross-border dimension into account, in their work on potential CBDCs and so avoid many of the challenges in today’s legacy technologies and processes,” said Sir Jon Cunliffe, chair of the CPMI and deputy governor for financial stability of the Bank of England, in a release.
“Central bank digital currencies are a potential pathway to improving international payments, but they bring risks for emerging market and developing economies and require a lot of work on regulatory and policy conditions to be successful,” added Indermit Gill, vice president equitable growth, finance and institutions practice group, at the World Bank.