Central bank digital currencies (CBDCs) could ease current frictions in cross-border payments – and particularly so if central banks factor an international dimension into CBDC design from the outset.
Based on a survey of 50 central banks in Q1 2021, a new BIS paper explores initial thinking on the cross-border use of CBDCs.
While most central banks have yet to take a firm decision on issuing a CBDC, the survey responses show a tentative inclination towards allowing use of a future CBDC by tourists and other non-residents domestically.
They have a cautious approach to allowing use of a CBDC beyond their own jurisdiction. Concerns about the economic and monetary implications of cross-border CBDC use and about private sector global stablecoins are taken seriously.
Research on CBDCs is addressing a wide range of economic and policy issues – including their potential to enhance cross-border payments. While the focus of most CBDC research and development projects has been domestic to date, attention to cross-border aspects has increased.
Cross-border use is explicitly considered or targeted by several projects, such as the mCBDC Bridge, Project Dunbar, Project Jura, Project Stella, Project Aber (SAMA and UAECB (2020)) and others (eg Bank of Canada, Bank of England and MAS (2018); Bank of Canada and MAS (2019)).
In October 2020, the G20 endorsed a roadmap to address current frictions affecting cross-border payments. While many of the efforts aim at enhancing the current payment ecosystem, the roadmap also features initiatives to harness the potential of emerging payment infrastructures and arrangements.
CBDCs could incorporate improvements to international payment arrangements from the outset, by factoring an international dimension into CBDC design.
As part of the actions envisaged by the roadmap, an initial stocktake of provisional CBDC designs and experimentation was requested. This aims to inform further work by the Committee for Payments and Markets Infrastructure (CPMI) and the BIS Innovation Hub, in consultation with the IMF and World Bank.
The stocktake should consider the extent to which CBDCs could be used for cross-border payments, followed by an analysis of the macro-financial implications of cross-border CBDC use.
Further actions will focus on the practical and technological aspects of implementing cross-border CBDCs.
The BIS paper contributes to this work with a survey of central banks’ initial thinking on cross-border use of CBDCs. The survey includes responses by 50 central banks to questions on the potential role of a CBDC in cross-border payments, the use of retail CBDC payments within other currency areas, interoperability features and crossborder risks.
This data set allows us to identify common trends and differences among central banks from around the world, with their wide range of policy approaches towards CBDCs.
First, we show that a number of central banks are open to allowing tourists and other non-residents to use CBDCs within their own jurisdiction (in addition to residents). Fewer central banks are open to allowing usage of their CBDC by non-residents abroad, given the risks this may entail for the issuing and recipient economies.
Second, we show that central banks take concerns about currency substitution by a foreign CBDC very seriously; they consider risks from facilitation of tax avoidance and loss of oversight by domestic authorities due to the use of foreign CBDCs to be especially relevant.
They are actively considering the tools that are available to limit the risks that the domestic currency might be displaced by a global stablecoin or foreign CBDC.
Some central banks may reconsider their approach to exchange restrictions if use of a foreign CBDC, stablecoin or cryptocurrency were to become widespread.
Third, the paper demonstrates that central banks are considering a variety of multi-CBDC (“mCBDC”) arrangements, with some even contemplating multiple CBDCs run on a single system.
Some central banks are exploring novel operational roles in foreign exchange (FX) conversion. Overall, the responses show an active consideration of cross-border issues and a strong interest in international peer learning.
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