<p>The Bank for International Settlement (BIS) and its partners, the
central banks of Israel, Norway and Sweden have completed a joint
experiment on cross-border retail central bank digital currency (CBDC). The
experiment was tagged ‘Project Icebreaker.’ Retail CBDCs are
government-backed digital currencies used for payment purposes by consumers and
businesses.</p><p>The experiment, which studied the potential advantages and challenges of
using retail CBDCs in international payment, found that <a href="https://www.financemagnates.com/forex/" target="_blank" rel="follow">foreign exchange (FX)
providers</a> can be used to facilitate cross-border <a href="https://www.financemagnates.com/tag/cbdc/" target="_blank" rel="follow">retail CBDCs</a> by breaking down a
cross-border transaction into two domestic payments. </p><p>‘The Hub-and-Spoke Model’</p><p>In a statement released on Thursday, BIS explained that it has developed a “hub-and-spoke solution” through which cross-border
retail CBDCs never have to exit their systems. This system works by
requiring many forex providers to submit quotes to a retail CBDC system’s hub
which then selects the cheapest alternatives for end users to settle their
transactions.</p><p>This model differs from most of the existing cross-border payment systems
under which users or payers have no choice about the exchange rate or who
provides the forex conversion, the international financial institution noted.
BIS added that its new solution uses bridge currencies to fight the problems of insufficient liquidity for currency pairs, thereby preventing the attendant issues of higher fees and delay in cross-border
payments. </p><p>“The project also demonstrated that the hub-and-spoke model can reduce
<a href="https://www.financemagnates.com/terms/s/settlement/" class="terms__main-term" id="2dc6d2c7-1626-4ecf-811e-4c1aabbdb280" target="_blank">settlement</a> and counterparty risk by using coordinated <a href="https://www.financemagnates.com/terms/p/payments/" class="terms__secondary-term" id="f1d2a713-da14-4a6b-8fcd-e8f360d07f45" target="_blank">payments</a> in central bank
money; and complete cross-border transactions within seconds,” BIS explained.</p><p>Furthermore, BIS said the new model means that countries considering the
development of their domestic CBDCs can introduce these features and other
innovative services into their cross-border transactions. It added that the
project provides a “deeper understanding of the technologies that can be
used and the technical and policy choices available.”</p><p>“Project Icebreaker is unique in its proposition. It first allows
central banks to have almost full autonomy in designing a domestic retail CBDC.
Then it provides a model for that same CBDC to be used for international
payments,” explained Cecilia Skingsley, the Head of the BIS Innovation Hub.</p><p>US, Australia Make New Moves on CBDC</p><p>Meanwhile, the United States and Australia both recently provided <a href="https://www.financemagnates.com/cryptocurrency/us-australia-make-new-moves-on-cbdc/" target="_blank" rel="follow">new updates on their efforts</a> towards assessing
the feasibility of a CBDC. While the United States says it is planning to
establish a new Treasury Department-led working group to deliberate on the
possible launch of a digital dollar, the Reserve Bank of Australia unveiled 14 firms that proposed various CBDC uses cases to be tested in its
limited-scale CBDC pilot that “will take place over the coming months.”</p>
This article was written by Solomon Oladipupo at www.financemagnates.com.
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