Central Bank Digital Currencies or CBDCs have been gradually gaining traction. While some countries are at a later stage in terms of piloting, others seem to have lagged in the global race.
The US, for one, has been struggling with its e-dollar exploration. Nevertheless, entities such as BIS and IMF have continued to advocate for the CBDC rollout in response to the growing popularity of stablecoins and have also backed several collaborative initiatives of the same.
In the latest development, the Bank for International Settlements [BIS] outlined a prominent use case after reviewing a prototype being jointly developed by the central banks of China, the United Arab Emirates, Thailand, and the Hong Kong Monetary Authority.
CBDC Speed and Cost benefits
Titled ‘Inthanon-LionRock to mBridge,’ the report by the Switzerland-based financial institution stated that blockchain-powered CBDCs can potentially minimize cross-border payments’ transaction throughput from multiple days to just a few seconds. According to BIS, the aforementioned prototype shows a tangible improvement not just in terms of cross-border transfer speed but also substantially reduces numerous of the core cost components of correspondent banking. It further stated,
BIS stated that the prototype essentially displayed the potential of faster and lower-cost cross-border transfers for participating jurisdictions. It also went on to add that it can be beneficial for jurisdictions that do not necessarily have strong correspondent banking relationships.
BIS revealed the project evolving into Phase 3 which involves additional experimentation with respect to design choices, technology trade-offs, and defining a future direction from prototype to an open-source, production-ready system.
This isn’t the only joint initiative. As a matter of fact, the central banks of Australia, Singapore, Malaysia, and South Africa unveiled a joint initiative to trial international settlements with the help of CBDC earlier this month. Called ‘Project Dunbar,’ the initiative is expected to prototype shared platforms thus facilitating direct transfers between institutions using digital currencies issued by multiple central banks.
Dunbar is slated to be conducted in partnership with the Bank for International Settlements Innovation Hub from its Singapore Center. Similar to mBridge the initiative will also be based on a DLT-enabled infrastructure to “lay the foundation for global payments connectivity.”.