Central bank digital currencies (CBDCs) are a game-changer and can transform finance and banking as we know them today, the Bank for International Settlements (BIS) has stated in its latest report. The report centered on a CBDC project between China, Thailand, the United Arab Emirates, and Hong Kong. Central banks across countries are actively working on national digital currencies.
CBDC project was able to slash the associated costs drastically.
Known as Project Inthanon-LionRock, it started in 2019 with the signing of an agreement between the Hong Kong Monetary Authority and the Bank of Thailand. They would later bring in the Digital Currency Institute at the People’s Bank of China and the Central Bank of the UAE in the third phase of the project, known as the mCBDC Bridge project or, in short, mBridge. According to the BIS, the prototype showed great efficiencies, especially in cross-border remittances. The bank said it was able to improve cross-border transfer speed from multiple days to seconds. It was also able to slash the associated costs drastically, according to the BIS report.
A CBDC solution could cut remittance costs by up to 50%.
“It thereby demonstrates the potential of faster and lower cost cross-border transfers for participating jurisdictions,” the BIS report stated. It added, “The overall goal of the project throughout these three phases remains unchanged: to design and iterate a new efficient cross-border payment infrastructure that improves on key pain points, including high cost, low speed, and operational complexities.” The report noted that cross-border remittance costs range from 2% in Europe to 7% in Latin America, with the global average at over 6%. While considering data obtained from the project and existing market data from McKinsey, PricewaterhouseCoopers estimates that a CBDC solution could cut remittance costs by up to 50%.