The Bank for International Settlements is teaming up with the central banks of Australia, Malaysia, Singapore and South Africa to test the use of central bank digital currencies (CBDCs) to settle cross-border payments.
As part of a new initiative named Project Dunbar, the global body for central banks will develop a prototype of shared platforms for cross-border transactions using multiple CBDCs.
“These multi-CBDC platforms will allow financial institutions to transact directly with each other in the digital currencies issued by participating central banks, eliminating the need for intermediaries and cutting the time and cost of transactions,” the BIS said.
CBDCs are a form of digital money, denominated in the national unit of account, which is a direct liability of the central bank. These can be designed for use either among financial intermediaries or by the wider economy.
"The multi-CBDC shared platform explored under Project Dunbar has the potential to leapfrog the legacy payment arrangements and serve as a foundation for a more efficient international settlement platform,” Fraziali Ismail, assistant governor of Bank Negara Malaysia, said.
“We hope the project will spur greater public-private collaboration to enable fast and frictionless cross-border payments, combining both the benefits of distributed ledger technology and the efficiency of a common platform.”
The BIS has long voiced its support for CBDCs, saying they contribute to an open, safe and competitive monetary system that supports innovation and serves the public interest.
"CBDCs could form the backbone of a highly efficient new digital payment system by enabling broad access and providing strong data governance and privacy standards based on digital ID," the BIS said in June. "To realise the full potential of CBDCs for more efficient cross-border payments, international collaboration will be paramount."
Cryptocurrencies, on the other hand, are speculative assets that in many instances enable criminal activity and "work against the public good", it added.
The BIS is planning to publish the results of the “Project Dunbar” in early 2022, which will provide more information on the development of the platform for global and regional settlements.
In April, the Bank of Japan said it would begin a series of experiments for a digital yen and the UK Treasury and Bank of England said they would establish a task force to develop a "Britcoin".
G7 finance ministers and central bank governors have also pledged to work together on CBDCs to develop an understanding "on their wider public policy implications".