Barely 72 hours after the Central Bank of Nigeria (CBN) unveiled its partnership with a financial technology (fintech) company – Bitt Inc – on its digital currency initiative, the Central banks in South Africa Australia, Singapore and Malaysia on Thursday unveiled plans to conduct a cross border payments trial using different central bank digital currencies (CBDCs) to assess if this allows transactions to be settled more cheaply and easily.
Currently, many governments and central banks around the world are exploring the use of CBDCs, which are digital forms of existing currencies.
For instance, some like China, are trialing retail-focused CBDCs designed to replicate cash in circulation, while others are considering using so-called wholesale CBDCs to improve the internal workings of their financial systems.
A news report by BBC.com indicated that the Central Banks in Australia, Singapore, Malaysia and South Africa hinted that the latest “project aims to develop prototype shared platforms for cross-border transactions using multiple CBDCs.”
The latest scheme is being spearheaded by the Bank of International Settlement’s Innovation Hub.
These platforms would enable participating financial institutions to transact directly with each other in CBDCs, which could eliminate the need for intermediaries and reduce the time and cost of transactions.
According to the statement jointly issued by the participating banks, the initiative, which will also explore different technical, governance and operating designs, should publish its results in early 2022.
In his remarks on the project, Assistant Governor, Bank Negara Malaysia, Fraziali Ismail, stated: “The multi-CBDC shared platform … has the potential to leapfrog the legacy payment arrangements and serve as a foundation for a more efficient international settlement platform.”
A separate BIS-led project exploring using CBDCs for cross border payments is also underway involving central banks from China, Hong Kong, Thailand and the UAE.
For now, most digital currency projects are still in the early stages and are domestically focused, but research findings on the projects showed that developing global rules and frameworks for how CBDCs can be used internationally is complicated technically, and potentially politically.
