As a result, there is a growing movement among central banks to work together to develop cross-border CBDC systems. The aim is to create a network of interconnected digital currencies that can be used for international transactions without the need for intermediaries or conventional currencies. This would greatly simplify and reduce the cost of cross-border payments, while also improving their speed and security.
The push for cross-border CBDC adoption has gained momentum in recent months, as central banks in various regions have announced plans to collaborate on common platforms. In January 2021, the central banks of Malaysia, Thailand, and the United Arab Emirates launched a joint project to develop a cross-border CBDC network for transactions between their countries. Similarly, the central banks of China, Japan, and South Korea have been discussing the possibility of creating a digital currency network for East Asia.
Other central banks are exploring the idea of using existing platforms to facilitate cross-border CBDC transactions. For example, the European Central Bank has proposed the use of TARGET2, the eurozone’s real-time gross settlement system, as a tool for cross-border CBDC transactions. Meanwhile, the Bank of England and the Federal Reserve have been discussing the potential of using blockchain technology to enable instant cross-border transfers between their respective currencies.
One of the key challenges to the adoption of cross-border CBDC systems is the issue of interoperability. Unlike conventional currencies, which are generally accepted worldwide, CBDCs are likely to be issued on different platforms, with their own protocols and technical standards. Therefore, central banks will need to work together to ensure that their digital currencies can interact seamlessly with each other, regardless of the underlying technology they use.
To this end, central banks are exploring various models of CBDC interoperability. One approach is to create a common protocol that all central banks can use to communicate with each other’s CBDC platforms. Another approach is to establish bilateral or multilateral agreements between central banks, enabling them to exchange their digital currencies at agreed exchange rates.
The push for cross-border CBDC adoption is a significant development in the evolution of digital currencies. By working together to develop interoperable CBDC systems, central banks can potentially create a more efficient, secure, and cost-effective global financial system that benefits everyone. However, this will require collaboration, innovation, and a willingness to embrace new technologies and standards across borders. As such, it is a complex and ongoing process that will require the collective efforts of both central banks and private sector stakeholders.