The Bank for International Settlements (BIS) has revealed the results of Project Icebreaker, a cross-border payment model for central bank digital currency (CBDC) conducted in collaboration with the central banks of Israel, Norway, and Sweden. According to a report released on Monday, the project demonstrated that the “hub-and-spoke” method could offer benefits for both banks and retail customers.
The system breaks a cross-border transaction down into two domestic payments and uses competitive quotes to achieve the best exchange rate, reducing fees and delays. The BIS called it a “competitive set-up” that “mitigates the risk of insufficient liquidity.”
The report highlighted that the Group of 20 industrialized nations has prioritized exploring cross-border payment solutions and that many central banks are looking to issue a CBDC in the next 10 years. The BIS has previously conducted successful CBDC cross-border experiments, such as Project Dunbar, which focused on wholesale use. For the Icebreaker model to work, the CBDC systems involved must operate 24/7 and have a hash time-locked contract, which is a form of smart contract.
While the project demonstrated the potential of CBDCs, the report emphasized that implementing the Icebreaker model in the real world would require addressing various technological, policy, and legal considerations. Policy considerations could include governance arrangements, the viability of the business model, liquidity provision, privacy, anti-money laundering compliance, and payment initiation-related standards.
The BIS has been exploring the potential of CBDCs for several years, and this project offers further insight into the benefits and challenges of cross-border payments with CBDCs. In September 2021, the BIS announced the establishment of the BIS Innovation Hub Centre in London, which will work on innovative projects related to CBDCs and other financial technologies.
CBDCs are emerging as a potential solution for improving cross-border payments. The BIS, as an international organization that unites the world’s central banks, is at the forefront of exploring this technology and its potential benefits for the financial sector. With its latest project, the BIS has provided more evidence that CBDCs could play a vital role in the future of cross-border payments.