Achieving cross-border integration
Integrated global value chains mean that the world is no longer a collection of “island
economies”, but rather a dense network of interconnections that requires a flexible
matrix of money, payments and broader financial services.46 Wholesale and retail
CBDCs as well as retail FPS, can support cross-border integration. The future monetary
system will thus be commensurate with the task of providing robust payment and
settlement rails that can support economic integration and public interest objectives.
The principles behind the construction of multi-CBDC platforms illustrate the
potential for decentralisation to be applied constructively.47 First, when there is
more than one currency involved, more than one central bank needs to take part in
the governance of the payment platform. One way to address the governance
problem among multiple parties is to adopt decentralisation through a DLT
platform.
Trusted notaries can manage the shared ledger, and central banks are the
102 BIS Annual Economic Report 2022
natural candidates to take on this task domestically, with shared infrastructure at
the global level. Second, since the decentralisation has to be accomplished using
real names, rather than using private keys as in cryptocurrencies, safeguarding
privacy is an essential design element. Achieving both goals – of respecting privacy
while using real names – can be accomplished by using public key cryptography.
There are different models for multi-CBDC platforms, ranging from simply
coordinating on standards, through interlinking systems, to a fully shared, common
mCBDC platform. On a common mCBDC platform, transfers are recorded on a single
ledger in one step, and participants have full real-time visibility of their balances.
The settlement process is thus simplified, obviating the need for reconciliation of
balances across accounts as in conventional correspondent banking transactions.
A common mCBDC platform creates the opportunity to simplify processes. For
example, business rules or conditions can be automated using the smart contract
features on a DLT platform. Such process automation reaps efficiency gains both in
costs and in transaction time. As mCBDC arrangements involve multiple central
banks, each with their own currency
, decentralisation can be a constructive feature,
and permissioned DLT can play an important role. In addition to the currencies of
each central bank in the platform, it could include tokens for other currencies,
including international currencies. These platforms have some family resemblance
with those used in crypto and DeFi, such as smart contracts and programmability
that enable PvP or, in the context of security settlements, DvP across borders.
Linking of public infrastructures across borders is also possible for retail FPS. A
recent project at the BIS Innovation Hub showed the potential for linking FPS in
different jurisdictions so that payments take seconds rather than days, cutting costs
and making fees and exchange rates transparent to senders before they commit to
a payment. Achieving these benefits requires coordination in messaging formats
and in several key policy areas, but it is technically feasible.48
