There’s been an abundance of information on cross-border payments and CBDCs, and here is yet another that highlights a recent drop by the Bank for International Settlements (BIS) through their CPMI committee. We’ve been tracking the increased CBDC activities for several years now, with the earliest efforts tying to many retail uses. During the latter part of 2022 there has been more of an increase in testing wholesale CBDCs (wCBDCs) for large value transactions. This particular BIS report, which readers can access through the referenced article link, discusses multilateral distributed ledger payments systems, of which there are now more examples of live testing.
The CBDC versions are Project MBridge, Project Dunbar, and Project Jura—as well as several private versions underway. Multilateral simply means that there are typically more than two currencies being transacted with a larger pool of FX liquidity capabilities globally, as seen with global systems such as Mastercard and Visa. Therefore, this is really nothing new, just another report that helps push forward the desire for more efficient cross-border settlements for high value transactions such as commercial paper, liquidity transfers, capital market exchanges, and syndicated loans. By more efficient, we mean cheaper, faster, and more transparent—eventually replacing the multi-touch correspondent banking system that has been the norm for decades.
One of the private efforts mentioned is Baton Systems. That system has been in use by HSBC and Wells Fargo, and one can link out to find more information around the DLT platform from that firm. Apparently the two banks have already conducted more than $200 billion in transactions between them on the DLT system from Baton. However, HSBC has reportedly transacted more than $4 trillion internally between bank subsidiaries, something that they are calling “FX everywhere.”
Major advantages pointed out by banks is that by using DLT, they can share FX transaction records, reducing the need for reconciliations. The solution enables payment-versus-payment (PvP) net settlement in commercial bank money compared to continuous linked settlement (CLS), which operates in central bank money, thereby improving timing and reducing risk.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group.