CBDC

CBDCs and Interoperability: What Lies Ahead

The Bank of International Settlements (BIS) has highlighted ways through which cross-border payments can be made easier and efficient in a report released last week. The authors explored the possibility of countries leveraging the Central Bank Digital Currencies (CBDCs) to bring about potentials benefits and a dynamic payment system interoperability.

CBDC Interoperability Will Limit Cross-Border Payments Challenges 

It is no more news that several central banks are already planning the development of their CBDC (78% according to a source). With the current banking technology and arrangement, cross border payments are complex, inefficient, slow and not so scalable.

However, the BIS report underscores a interoperability between CBDCs to form multi-CBDC (mCBDC) arrangements. The paper explored different ways for promoting seamless cross-border payments system involving multiple currencies. Therefore, it outlined three key arrangements revealing how payments system can be interoperable. 

The report explains further that the proposed coins would be inclusive and greatly benefit emerging economies that are not properly served by the extant banking methods. It also reveals that they are better alternatives to the proposed development of a global private sector stablecoin. Also, it will facilitate the smooth flow of diverse convertible national currencies and bolster monetary sovereignty.

Central Banks to Work Together to Achieve CBDC interoperability 

According to the authors, central banks have to work together to make the currency work and also to enjoy the accompanying benefits. They noted that this might be difficult at first but will aid frictionless cross border payments. The report explains that if people are able to easily access other currencies at a low cost for global activities like remittances, trades etc., it could drive the quicker adoption of this national digital coin. 

The BIS revealed it will support experimentation arrangements on its innovation hub. Based on the paper, a digital coin could implement new technologies to explore several opportunities that were previously unavailable. Such opportunities may include added security etc. 

 

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