The Bank for International Settlement (BIS) and its partners, the
central banks of Israel, Norway and Sweden have completed their joint
experiment on cross-border retail central bank digital currency (CBDC). The
experiment was tagged ‘Project Icebreaker.’ Retail CBDC are
government-backed digital currencies used for payment purposes by consumers and
businesses.
The experiment, which studied the potential advantages and challenges of
using retail CBDC in international payment, found that foreign exchange (FX)
providers can be used to facilitate cross-border retail CBDC by breaking down a
cross-border transaction into two domestic payments.
In a statement released on Thursday, BIS explained that it has developed a “hub-and-spoke solution” through which cross-border
retail CBDC never have to exit their systems. This system works by
requiring many forex providers to submit quotes to a retail CBDC system’s hub
which then selects the cheapest alternatives for end users to settle their
transactions.
This model differs from most of the existing cross-border payment systems
under which users or payers have no choice about the exchange rate or who
provides the forex conversion, the international financial institution noted.
BIS added that its new solution uses bridge currencies to fight the problems of insufficient liquidity for currency pairs, thereby preventing the attendant issues of higher fees and delay in cross-border
payments.
“The project also demonstrated that the hub-and-spoke model can reduce
settlement
