Paper moots CBDC use in cross-border payments

Interoperability to make new payment mechanism apt for global transactions

Global financial infrastructure managers are planning to involve central bank digital currencies, or CBDCs, for cross-border payments, with interoperability key to international transactions, according to a research paper.

Continued exploration of CBDCs will help leverage existing payment modes, and new solutions will become an extension of the current infrastructure for cross-border payments, said the paper jointly issued by the Society for Worldwide Interbank Financial Telecommunication, and Accenture, a global professional services firm, on Thursday.

“A multilateral interchange mechanism is required that enables payments to be made end-to-end in a frictionless form,” the paper said.

Institutions, such as financial infrastructure managers, can provide interoperability in the crossborder usage of CBDCs and enable working of different systems with institutions acting as intermediaries, it said.

The paper said that in CBDC cross-border payments, one or more of the parties will have to buy and sell CBDCs in a free market as it happens today with other currencies. There might be different foreign exchange rates for CBDCs.

SWIFT, a global provider of financial messaging services, said that over the next two years and beyond, it will deliver an exciting strategic roadmap that will expand its capabilities beyond financial messaging to provide comprehensive transaction management services.

The next-generation digital platform will use Application Programming Interface and cloud technology to provide a set of processing services for banks, SWIFT said.

“Making a payment infrastructure based on CBDCs that is efficient and interoperable with the broader economy presents some new challenges, but the majority are the same as those for existing payment solutions,” said Thomas Zschach, chief innovation officer of SWIFT.

David Treat, a senior managing director at Accenture, who leads its blockchain and multiparty systems practice globally, said: “As an integral part of the financial service infrastructure, SWIFT plays a critical role in illustrating the possible strategic moves its members may undertake as CBDCs begin to transform the financial services landscape.”

According to the paper, more than half of the world’s central banks are actively considering the introduction of digital currencies, with motivations including compensating for the reduced use of physical notes and improving payments in digital retail.

The broad development of CBDCs could lead to profound change in the global payments ecosystem. Issues are still under discussion, from the ways in which CBDCs would move across jurisdictions to the integration of CBDCs into the mix of currencies that already exist, it said.

By the end of 2019, central banks covering 75 percent of the world’s population and 90 percent of its economic output were exploring CBDCs through research, experimentation, or development, it said. Some are moving beyond experimentation and a few have already been issued in a live environment, for example, in select locations in China.

The People’s Bank of China, the central bank, has conducted digital RMB trials in some areas. It also took measures to improve monitoring of cross-border financial information and data transfers, such as greenlighting a joint venture with the operator of a global financial messaging network, to prevent cross-border payment risks.

The PBOC said in March that SWIFT has established a joint venture limited company with four Chinese partners to provide information services, including establishing and operating a local centralized node of financial messaging networks and local data warehouses.

A CBDC, as the paper identified, is a new form of digital money issued by a central bank in addition to notes and reserves. CBDCs are primarily intended as a new medium of exchange in the wider economy with a number of possible benefits, most obviously enabling instant settlement between two parties remotely, using fiat currency issued by the central bank.

SWIFT plays a critical role in illustrating the possible strategic moves its members may undertake as CBDCs begin to transform the financial services landscape.”

David Treat, a senior managing director at Accenture