A project that examines the potential benefits and difficulties of utilising UBDC in international payments has been completed by BIS in collaboration with the central banks of Sweden, Norway, Israel, and Sweden.
The Bank for International Settlements (BIS) has completed research that examines the potential benefits and difficulties of utilising central bank digital currencies (CBDC) in international payments in collaboration with the central banks of Israel, Sweden, and Norway.
According to the BIS in the study released on March 6, the initiative, known as "the Icebreaker," was designed to evaluate the technical viability and potential effectiveness of cross-border and cross-currency transactions across experimental retail CBDC systems.
According to the report, the project involved collaboration between the Bank of Israel, Sveriges Riksbank, Norges Bank, and the BIS Innovation Hub Nordic Center.
It has helped these organisations better understand the underlying technologies and related policies, promoting scalability, interoperability, and simplicity. This will in some ways, influence the country's crypto regulations.
To that purpose, central bank project teams evaluated various techniques of integrating domestic systems (a.k.a. 'hub-and-spoke' solutions) by breaking down cross-border transactions into two domestic payments, supported by a foreign exchange supplier operating in both, so retail CBDCs never needed to leave their own systems.
The BIS also emphasised the benefits of such a strategy above conventional cross-border payments:
“In most existing cross-border payment systems, the payer has no choice regarding the exchange rate, as it has no control over who the provider of foreign exchange conversion is. In the model developed by the Icebreaker project, many foreign exchange providers can submit quotes to the system’s hub, which automatically selects the cheaper one for the end user.”
Furthermore, the model used in the Icebreaker project has the capacity to carry out international transactions transparently and almost instantly, with minimal technical requirements for integration, as well as being compatible with various technologies.
These capabilities are achieved using coordinated payments in central bank money to offset settlement and counterparty risk.
Cecilia Skingsley, the head of the BIS Innovation Centre, offered the following explanation of the project:
“Project Icebreaker is unique in its proposition. It first allows central banks to have almost full autonomy in designing a domestic retail CBDC. Then it provides a model for that same CBDC to be used for international payments.”
The BIS intends to investigate cross-border settlements and trading employing CBDCs enabled by decentralised finance (DeFi) protocols, according to a Finbold study from November 2022.
While the organization's leader, Agustin Carstens, has voiced concern that cryptocurrencies may displace fiat money, the group has maintained that CBDCs are vital for modernising finance.
Ben Broadbent, the Bank of England's (BoE) deputy governor for monetary policy, asserted in late February that CBDCs might "offer possibilities" and advantages to the overall financial ecosystem, including the ability to facilitate more efficient payments.
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