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A joint committee of the BIS Innovation Hub, the International Monetary Fund (IMF), and the World Bank has proposed keeping interoperability in mind while designing central bank digital currencies (CBDCs) to foster the growth of cross-border payments.
Interoperability Between CBDCs
Several leading international financial officials want to make sure that CBDCs are interoperable.
The BIS Innovation Hub, International Monetary Fund (IMF), and the World Bank published a 34-page report Friday with alternative designs for a globally interoperable payment system of CBDCs.
They found that one of the key problems in the current payment system is the lack of efficient coordination between entities, leading to higher costs, delays, and deductions. The committee promoted a joint effort in designing CBDCs “to support the enhancement of cross-border payments.”
One of the designs involved a censorship-resistant CBDC, which anyone could own and transact worldwide. However, according to the committee’s responses from over 40 central banks, only 8% of them are considering use beyond domestic boundaries.
The preferred design among banks is likely to be the “m-CBDC” model. It requires the payment systems to be compatible with the various digital currencies or connected so that the amount is paid in one CBDC and the payee receives it in a different CBDC. The central banks would need to form an international technical standard regarding CBDCs.
The report said that m-CBDCs “could be preferable to alternative proposals that involve the creation of private sector global stablecoins” like Facebook’s Libra. Moreover, the BIS has held a negative stance on cryptocurrencies and stablecoins because of their lack of credibility, and the various kinds of regulatory and financial risks involved with investing in them.
The international committee said it wants to benefit from the “clean slate” opportunity that’s surfaced as most central banks are still in the planning or development stage for CBDCs.
The report noted that there are currently only two live retail CBDCs: the Sand Dollar in The Bahamas, and DCash in the Eastern Caribbean. The report also mentioned China’s efforts in launching a pilot program of their CBDC, which has been promoted via free airdrops to citizens and infrastructure development focusing on digital currency adoption.
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