BASEL, Switzerland—The Bank for International Settlements has published a paper on central bank digital currencies (CBDCs) and the future of cross-border payments.
As numerous central banks explore CBDCs, there’s a natural focus on domestic requirements. The BIS hopes to encourage banks to explore cross-border payments at the design stage and outlines three potential approaches, Ledger Insights explained.
The paper highlights two reasons why cross-border payments have become increasingly challenging.
According to the paper:
- There has been a decline in the number of correspondent banks, which play a critical role in international payments. These correspondents provide a service so banks that don’t have accounts at the destination can send money across borders, the paper notes, citing as an example of the contraction the 30% decline between 2012 and 2018 in Central, South America and the Caribbean.
- Consumers have become more aware of the issues because retail use of foreign currencies has grown significantly in the last ten years. That’s especially in cross border e-commerce, travel and migrant labor remittances, the paper suggests.
Facebook Initiative Cited
“It’s this sort of area that the Facebook-founded Diem (formerly Libra) project plans to address. The project received multiple mentions in the paper, Ledger Insights stated.
“Multi-CBDC arrangements are preferable to proposals that involve the creation of a private sector global Stablecoin,” the paper says.
Some of the current issues with cross border payments include unclear foreign exchange rates, unpredictable fees, and different opening hours across regions. Additionally, a variety of communication standards are used and there’s limited transparency. There are a large number of intermediaries and a high cost of compliance, Ledger Insights said.