The BIS is an association of 61 central banks from around the world and has innovation hubs set up in multiple locations focused on exploring the applications of new financial technologies including CBDCs, which are digital versions of countries' sovereign currencies.
The new collaboration, called Project Icebreaker, involves the BIS Innovation Hub's Nordic Centre, and it will test key functions and technical aspects of interlinking different domestic CBDC systems. As BIS sees it, cross-border payments continue to be plagued by high costs, low speed, limited access and insufficient transparency.
The International Monetary Fund has said CBDCs could cut costs for international payments while earlier this week, the BIS Innovation Hub announced the success of a project involving multiple Asian CBDCs that facilitated over USD 22 million in foreign-exchange transactions.
Project Icebreaker will test near-instant retail CBDC payments across borders at lower costs. A final report on the project is expected in the first quarter of 2023.
This experiment will dig deeper into the technology, architecture and design choices and trade-offs, and explore related policy questions. Beju Shah, head of the BIS Innovation Hub Nordic Centre said that the learnings will prove valuable especially for central banks thinking about implementing CBDCs for cross-border payments.
As we found out in our recent Voice of the Industry article with Jesper Domargård from IDEMIA, a factor that has probably made central banks intensify their CBDC efforts is the rapid decrease in the use of cash in different parts of the world. Today, unbanked populations—and there is a significant unbanked population even in the most developed parts of the world—participate in the economy by getting paid in and paying with cash, making them completely dependent upon cash.
But in a future where cash has disappeared from use, these populations will be completely excluded from the economy. However, if there was an electronic form of cash – e-cash – that citizens could access and use without having a bank account (in the same way they can access physical cash without having a bank account today), these populations could continue to participate in an economy without physical cash.
In September, the Reserve Bank of Australia (RBA) announced plans to identify business models and uses for a central bank digital currency, or eAUD, and is likely to conduct a pilot early in 2023. The project, which began in July 2022, will help understanding of some of the technological, legal, and regulatory considerations associated with a CBDC.
Furthermore, the Reserve Bank of India (RBI) has consulted with public sector banks and fintechs such as FIS to test out a CBDC.
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