The G20 has made enhancing cross-border payments a priority. They released a report that endorsed a comprehensive program to address the key challenges.
The report stated:
Faster, cheaper, more transparent and more inclusive cross-border payment services would deliver widespread benefits for citizens and economies worldwide, supporting economic growth, international trade, global development and financial inclusion.
The report takes stock of the international dimension of Central Bank Digital Currency (CBDC) projects and the extent to which they could be used for cross-border payments. The report also investigates possible macro-financial implications associated with the cross-border use of CBDCs. The analysis does not imply that central banks mentioned in this report have reached a decision about issuance of a CBDC.
First, from the practical perspective of how a cross-border payment infrastructure with CBDCs could be set up; and second, from a macro-financial perspective, examining the potential increase in cross-border flows, possible financial stability risks and currency substitution, and reserve currency configurations and backstops. Cross-border payments with CBDCs can be envisioned in two fundamentally different ways.
The first scenario assumes availability of a retail3 CBDC of a given jurisdiction to anybody inside and outside of that jurisdiction, with limited to no coordination between the issuing central banks. In this case, if the design allows for anonymous payments like cash, it would by default be accessible to foreign residents. In practice, however, relatively few central banks are considering fully anonymous systems.
In contrast to cash, various restrictions on cross-border use could be imposed via the technological and regulatory design of the CBDC. This first scenario is conditioned by the domestic design of a CBDC.
The second scenario assumes some degree of interoperability between CBDCs based on access and settlement arrangements to facilitate the cross-border use of CBDCs from two or more jurisdictions. Such arrangements can connect both wholesale and retail CBDCs across borders, imply strong cooperation among central banks, and include technological, market structure and legal aspects. This second scenario – which is the main focus of the report – relies on design choices of the interoperability infrastructure.
Both scenarios are discussed in the report and illustrated with examples of ongoing projects. Introducing a CBDC could have a range of macro-financial implications. Ultimately, those implications will depend on several factors, such as the level and nature of international adoption. Nevertheless, economies around the world are different, in need of different financial solutions. Therefore, the one size fits all CBDC will not work for every nation or region. The CBDC speed and transaction time are important, however, central bankers have much more to consider.
