There’s lots of discussion around cross-border payments activity at recent industry events, including the CPI Summit and AFP 2022. This comes as no surprise since the topic has been an innovation priority from the G20 and BIS for several years. One of the delivery methods increasingly discussed has been CBDCs, which are live in some limited form and in pilot across a number of markets.
Most of the models tested are retail use cases, which are replacing paper bank notes in circulation with digital currency. An article in the Tokenist discusses a recently completed pilot test between five entities using four CBDCs and 20 commercial banks, but in a wholesale payment uses case.
According to the Tokenist, “the four central banks transferred $22 million on behalf of their corporate clients across 20 commercial banks” and they also ran “164 CBDC transactions from corporate clients.” The piece also linked out to a separate report released by the Bank for International Settlements (BIS), in collaboration with the Central Bank of the UAE (CBUAE), People’s Bank of China (PBoC), Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BoT). The effort is called Project mBridge and involves a blockchain infrastructure called mBridge with a five-payer protocol.
The report found that there was an increased transaction speed—seconds versus several days. There were also lower costs, which weren’t specified, but the article estimates 2020 cross-border transaction costs of $117 billion. Another benefit cited was the reduced FX risk, since faster transactions reduce the impact of currency valuation swings.
We’ve also previously covered this how this space is evolving, and you can view that here.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group.
