The Bank of International Settlements publishes report on use of central bank digital currencies in cross-border projects

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Authored by: Simon Deane and Chris Wong

On 21 June 2022, the Bank of International Settlements (“BIS”) published a report on the use of central bank digital currencies (“CBDCs”) in cross-border projects conducted by the BIS Innovation Hub (“BISIH”) through its centres around the world.

In the last few years, central banks have been exploring the feasibility of issuing their own digital currencies, having the status of legal tender in their economies. The introduction of CBDCs brings its own unique benefits and represents a potential solution to existing problems and inefficiencies in the economy. In particular, several central banks have identified cross-border payments as an area in which CBDCs can be utilised to facilitate a more efficient, faster, cheaper and transparent method of transferring funds.

The BISIH highlighted four “experiments” it conducted with various central banks around the world where CBDCs were proposed as a way of attaining such efficiencies in cross-border payments.

1. Project Inthanon-LionRock2: A project conducted in September 2021 between the Hong Kong Monetary Authority (“HKMA”) and the Bank of Thailand, as well as the BISIH Hong Kong Centre, building on the previous Inthanon-LionRock project first discussed in 2016. Inthanon-LionRock2 explored the use of distributed leger technologies and digital currencies for facilitating real-time cross-border funds transfers. It was demonstrated that such platforms could complete payments safely and cheaply within seconds, instead of the usual days.
   
   
2. Project Jura: A project conducted and completed by December 2021, between BISIH Swiss Centre, the Bank of France, Swiss National Bank, and a private sector consortium, Project Jura explored the direct transfer of euro and Swiss franc wholesale CBDCs between French and Swiss commercial banks on a single distributed ledger platform operated by a third party.
   
   
3. Project Dunbar: A project between BISIH Singapore Centre, the Reserve Bank of Australia, the Bank Negara Malaysia, the Monetary Authority of Singapore and the South African Reserve Bank, exploring the potential for a common platform for multiple CBDCs to facilitate cross-border payments between the participants on the platform.
   
   
4. Project mBridge: A follow-up to Project Inthanon-LionRock, involving the HKMA and the Bank of Thailand, as well as the People’s Bank of China and the Central Bank of the United Arab Emirates, building on the platform and findings of Inthanon-LionRock. The proposed platform envisages that central banks will issue their own CBDCs and distribute them to the participants on the platform, and is built adopting a modular approach, allowing for the implementation of features that can apply across all participating members. This project is ongoing.

The projects highlighted many benefits of such platforms (including efficiency, speed, and transparency) and their feasibility, but issues still remain, including the need to create a commonly agreed governance framework for platforms, systemic issues in relation to the economic implications for such ease of transfer and any spill-over issues.

The various projects highlight the growing focus by central banks on developing systems to facilitate the use of CBDCs, both within their own jurisdictions and across the world. Further collaborations are expected, although competing regulatory policies and views of the various central banks may ultimately fragment any such plans for a common platform or a global solution.

The paper from the BISIH can be found here.

Key Contacts

Simon Deane

Consultant | Banking and Finance

Email or call +852 2825 9209