Now, later or never: Will CBDCs be the silver bullet for cross-border payments?

hands digitally editing a map

Share this post

The Payment Association’s Project Cross-border hosted a forum in partnership with EPA Asia and IIF to explore the challenges a CBDC could pose and what technology could do to disrupt international transactions.

Last week, the Bank of England governor, Andrew Bailey, casted doubt over the need for a digital pound at a Treasury Select Committee hearing on financial stability.

Baily questioned whether a “wholesale digital central bank currency (CBDC) is needed because we’ve got a wholesale central bank money settlement system”.

According to market research led by Kevin McAdam, leader of The Payment Association’s Project Cross Border team, international transactions need to be cheaper, faster, more transparent and inclusive. But there also needs to be more regulatory harmonisation across jurisdictions.

Could the implementation of CBDCs solve this issue? CBDCs will have a bigger role in wholesale banks’ cross-border payments over the next decade, though challenges remain in its adoption across jurisdictions.

That’s the broad message from a panel of experts who debated the issue at the 10th Global Payments Forum in October last year.

Key cross-border challenges cited in the study, presented at the 10th Global Payments Forum:

  • National restrictions and competitive advantages for domestic players are an obstacle in cross-border payments.
  • There is friction in processes, and transaction costs are high.
  • Rules vary across jurisdictions, and compliance can be complex, with differing anti-money laundering requirements.
  • There should be greater collaboration with international standards organisations.

They described a CBDC as digital money that is a liability of the central bank. It differs from commercial bank money, which is a liability of the bank of account. It is also real money, uses technology and can mirror the economic plans of a country.

The panel moderator, Shirish Wadivkar, MD, global head at Wholesale Payments and Trade Strategy, noted a surge of interest in CBDCs, with web searches on the topic in October 2022 doubling compared to January 2022. Meanwhile, cryptocurrency searches have dropped to a quarter of the mark reached at the start of the year, according to Google Trends.

Some panel members noted that CBDCs have the potential to boost efficiency and transparency, while reducing costs and risk, with faster settlements of transactions. CBDCs could help connect real-time payments across different jurisdictions, one panellist said. A situation where several countries operate CBDCs and have a shared ledger, or shared platform, was seen as particularly beneficial.

“In terms of CBDC, there is more focus on wholesale. We see an opportunity for cross-border payments, where we see a huge amount of inefficiency,” explains Joshua Daniel, global R&D lead at Coin Systems ONYX by JPMorgan, one of the panellist.

Chance to leapfrog?

The technology could be especially useful for developing countries, which might not have the speedy-payment infrastructure of some other nations. Investment in CBDCs could enable systems to be created that can be used for the next 40 years, according to Anthony Ralphs, lead product manager at Ripple, another panellist.

“The technology is less centralised and more distributed. And that opens up a huge opportunity because it means new participants can come in at a lower cost and start participating,” says Ralphs.

“The UK has pretty good infrastructure, fairly robust electricity, telecoms etc., but some of the countries around the world that we’re talking to don’t have that, or they have remote villages or locations where the cost of participation in the ecosystem is prohibitive, so they don’t participate. CBDCs provide a leapfrog opportunity.”

CBDCs could also benefit groups of countries within a trading corridor that have an interest in improving cross-border payments, it was said.

The panel highlighted that many functions and benefits of CBDCs in commercial transactions can be achieved without its use in developed economies that already operate real-time settlements.
As a result, it is likely there will be more jurisdiction issues on CBDC and lot of the drivers behind that are political rather than a business need.

Still, developed countries with slow legacy technology or infrastructure could benefit from the digital currency. All in all, CBDCs are likely to be adopted at a different pace in countries around the world, according to the panel.

Retail needs

However, one of the biggest challenges CBDCs face is so-called interoperability, or the ease of working with systems in other countries or jurisdictions. For this to happen, there needs to be a harmonisation of compliance rules, policies and procedures to prevent friction and delays with transactions, the panel said.

Retail cross-border payments, specifically, face issues around identity, transparency and availability, one panellist noted.

To encourage CBDC adoption, central banks would have to make it easy and consistent to use, like physical cash or credit and debit cards. And it would also require people to have the technology to access it.

So the question remains, are CBDC the way forward for cross-border payments? Or is Bailey right to cast doubt on this?

More To Explore

Membership

Are you a member of The Payments Association?

Member benefits include free tickets, discounts to more tickets, elevated brand visibility and more. Sign in to book tickets and find out more.

Welcome

Log in to access complimentary passes or discounts and access exclusive content as part of your membership. An auto-login link will be sent directly to your email.

Subscribe to continue reading

Development note: Shows when someone IS logged in OR logged out AND we don’t know if they are a subscriber or a member (i.e. no Cookie “role” is set to “guest” and “is_subscriber” is “false”)

Already a subscriber? Log in to continue reading

Development note: Shows when we know someone IS logged-out, IS a subscriber, but their role is NOT one of the member roles (i.e. Cookie “role” IS set to “guest, customer, non-member” and “is_subscriber” is “true”)

Member of The Payments Association? Log in to continue reading

Development note: Shows when we know someone IS logged-out, IS a subscriber and IS a member (i.e. Cookie “role” is NOT set to “guest, customer, non-member” and “is_subscriber” is “true”)

Gain Insider Knowledge

Become a member of The Payments Association today

Join The Payments Association and unlock a world of benefits:

  • Up to 25 introductions per year
  • Exclusive member content
  • Access member-only events, as well as free passes to headline events
  • Influence and shape the industry & policy agenda
  • Elevate your brand profile
  • Access an all-year round networking app

Sign in or become a member to access this content

Gain Insider Knowledge

Become a member of The Payments Association today

Join The Payments Association and unlock a world of benefits:

  • Up to 25 introductions per year
  • Exclusive member content
  • Access member-only events, as well as free passes to headline events
  • Influence and shape the industry & policy agenda
  • Elevate your brand profile
  • Access an all-year round networking app

Having trouble signing?

We use an auto-login link to ensure optimum security for your members hub. Simply enter your professional work e-mail address into the input area and you’ll receive a link to directly access your account.

First things first

Have you set up your Member account yet? If not, click here to do so.

Still not receiving your auto-login link?

Instead of using passwords, we e-mail you a link to log in to the site. This allows us to automatically verify you and apply member benefits based on your e-mail domain name.

Please click the button below which relates to the issue you’re having.

I didn't receive an e-mail

Tip: Check your spam

Sometimes our e-mails end up in spam. Make sure to check your spam folder for e-mails from The Payments Association

Tip: Check “other” tabs

Most modern e-mail clients now separate e-mails into different tabs. For example, Outlook has an “Other” tab, and Gmail has tabs for different types of e-mails, such as promotional.

Tip: Click the link within 60 minutes

For security reasons the link will expire after 60 minutes. Try submitting the login form again and wait a few seconds for the e-mail to arrive.

Tip: Only click once

The link will only work one time – once it’s been clicked, the link won’t log you in again. Instead, you’ll need to go back to the login screen and generate a new link.

Tip: Delete old login e-mails

Make sure you’re clicking the link on the most recent e-mail that’s been sent to you. We recommend deleting the e-mail once you’ve clicked the link.

Tip: Check your security policies

Some security systems will automatically click on links in e-mails to check for phishing, malware, viruses and other malicious threats. If these have been clicked, it won’t work when you try to click on the link.

Need to change your e-mail address?

For security reasons, e-mail address changes can only be complete by your Member Engagement Manager. Please contact the team directly for further help.

Still got a question?