The Bank for International Settlements (BIS) is working with several countries to test the use of central bank digital currencies (CBDCs) for international settlements.
BIS project involves the central banks of Australia, Malaysia, Singapore and South Africa. The experiment could lead to a more efficient global payments platform.
Led by the BIS centre in Singapore, ‘Project Dunbar’ aims to develop prototype common platforms for cross-border transactions using multiple CBDCs. This would allow financial institutions to transact directly with each other using digital currencies. This would consequently eliminate the need for intermediaries and reduce transaction time and costs. BIS said the findings of the study are likely to be published next year.
We are confident that our work on multi-CBDC for international settlements will break new ground in this next phase of CBDC experimentation and lay the foundation for global payments connectivity.
– Singapore BIS Innovation Hub head Andrew McCormack said.
Around the world, central banks are trying to come to terms with emerging payment technologies and privately issued digital currencies. For example, Facebook Inc’s Diem project, formerly known as Libra, is building a global payments network. Its sheer size and number of users means it can support its own stablecoins or CBDCs.
The BIS said earlier this year that CBDCs are essential for governments to maintain control
over the money supply. Amid the declining use of cash, cryptocurrencies are also gaining popularity as both investments and legal tender. This has motivated other large-scale payment projects such as Facebook’s Diem. The institution believes that without CBDC, these companies could leverage their huge social media user base and dominate the digital payments space.
Furthermore, BIS stated in its annual economic report that “CBDCs and open platforms are most conducive to creating a virtuous circle.” By this, the institution means that CBDCs would facilitate wider access, lower costs, as well as better services than alternatives.
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