The central banks of Australia, Singapore, Malaysia and the Republic of South Africa have set out to test the use of government digital currencies in cross-border payments. The process led by the Bank for International Settlements is to find out whether they can simplify transactions and make them cheaper.
Reserve Bank of Australia is partnering with counterparts in Asia Pacific, Africa on the CBDC project
While a number of nations are still testing their central bank digital currencies (CBDCs) in national applications, some are preparing for international experiments. The Reserve Bank of Australia, Bank Negara Malaysia, the Monetary Authority of Singapore and the South African Reserve Bank have partnered to conduct cross-border litigation.
The cooperation aims to develop common platforms for cross-border transactions with various CBDCs, according to a statement quoted by Reuters. The program is led by the Bank for International Settlements (BIS) Innovation Hub. Fraziali Ismail, deputy governor of Bank Negara Malaysia, was quoted as saying:
The common multi-CBDC platform … has the potential to skip the old payment agreements and serve as the basis for a more efficient international settlement platform.
The prototype platforms should enable financial institutions to trade directly with one another via the sovereign digital currencies, the report explains. This approach would allow them to eliminate the need for intermediaries. Transaction times and costs should also decrease. Participants will explore different designs related to technology, governance, and operations.
This is not the first experiment of its kind. BIS Innovation Hub is leading another project involving central banks from China, Hong Kong, Thailand and the United Arab Emirates. In June, the Bank of France and the Swiss National Bank announced a collaboration with the hub to test the use of digital wholesale currencies in cross-border transactions. In July, the IMF, World Bank and BIS recommended that countries work together on CBDCs to improve cross-border payments.
Earlier this year, Hong Kong tax authorities started a second round of testing of the People’s Bank of China-issued national digital currency, which has arguably the most advanced CBDC project. The Chinese Special Administrative Region announced that it will connect its domestic payment system to the mainland’s digital yuan network to assess the currency’s usability in cross-border scenarios.
Do you think central bank digital currencies will challenge the current international payments system? Do share your thoughts on the matter in the comments below.
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