On May 30, a report was released on the improvement in the cross-border multi-CBDC system and its current situation in the global financial world. According to the report, currently, we are witnessing a lack of cost-effectiveness, low adequacy, and inadequate transparency in CBDCs.
The report has mentioned some projects that are currently under operation by different countries and international organizations. A multi-CBDC cross-border payment system is a very long-needed thing for which every country is waiting for as it will enhance cross-border transactions. There are many benefits of a CBDC-based cross-border payment because it will reduce the cost and time taken both. Tommaso Mancini-Griffol, deputy division chief of monetary and capital markets at the International Monetary Fund, stated at the 2023 Digital Monetary Institute symposium in London that Libra, Facebook’s effort at a global currency, provided a “collective shock” to the public sector. He also added that there are many loopholes present in the current system that need to be addressed.
Some solutions to this problem like the interconnectedness of central bank digital currency systems can be a big booster to the world. Also, many central banks in the world are keen to develop CBDCs which can further help in creating an interconnected payment system. In the report, various projects have been mentioned which could bring revolution to the payment system.
Projects like Icebreaker and Project mBridge are currently the most advanced multi-CBDC projects existing today. Project Icebreaker is a collaboration between the Bank of Israel, Norges Bank, and Sveriges Riksbank, in coordination with the Bank for International Settlements Innovation Hub Nordic Centre, that aims to connect retail CBDC systems. Additionally, Project Bridge has been developed through the collaboration of the BIS innovation hub, the Hong Kong Monetary Authority (HKMA), the Bank of Thailand, the People’s Bank of China, and the Central Bank of UAE. Both projects are multi-CBDC platforms for cross-border transactions aimed to reduce costs and increase efficiency.
It’s not very tough to build an interconnected payment system based on CBDC because almost every country is looking forward to developing its CBDC. The only problem which will arise is geopolitical issues like Russia Ukraine war, the USA’s relation with other countries, and issues of a safe and secure environment.
The two multi-CBDC cross-border payments systems, Icebreaker and mBridge, currently use different architectures, technologies, and bridge currencies. It is very hazy whether the two will adopt similar or divergent strategies for governance, providing foreign exchange liquidity, and other aspects.