The central banks of Israel, Sweden, and Norway have been exploring the potential of retail central bank digital currencies (CBDCs) in cross-border payments in collaboration with the Bank for International Settlements (BIS).
The pilot, Project Icebreaker, has been in the pipeline since September 2021, and at the World Economic Forum (WEF), Bank of Israel’s Governor Amir Yaron briefed attendees on the progress. Yaron confirmed that the experiments are making significant progress, involving leading financial institutions in the participating countries.
Israel’s central bank chief noted that while the rest of the world is focused on wholesale CBDCs, retail CBDCs can change the landscape for cross-border payments by eliminating intermediaries in their entirety. Yaron added that an international retail CBDC platform like Project IceBreaker would “reduce the risk of failure” because of the atomic nature of transactions.
“You want to have a whole matrix, all the currencies against all the currencies,” Yaron said. “You want a system that is agile enough to do that. And it seems like this system is capable of doing it.”
The state of cross-border payments has been clogged with high fees and uncomfortable delays for individuals and businesses, prompting the scramble to improve the industry. Israel’s central bank governor notes that the bottlenecks lie in the execution of a foreign currency exchange which inflates the costs for users.
Yaron notes that Project Icebreaker circumvents the challenge by separating the functions of payment and currency exchange between different entities. While his speech did not delve into the details, there is a widespread belief that private firms will provide several functionalities in the retail CBDC.
Optimistic about the future but wary of the flaws
Yaron disclosed to attendees of the WEF panel on CBDCs that he is aware of the risks associated with launching a retail CBDC with cross-border functionalities but remains optimistic about its potential.
One key challenge posed by the offering is applying and enforcing anti-money laundering rules (AML) and the fear that it could push private operators out of business. Yaron is also concerned over the control of the network, pointing out to attendees that each method of running the platform has its downsides.
“Is it going to be a consolidation of central banks, international bodies like the IMF (International Monetary Fund) or BIS, private companies like Swift or others?” Yaron asked attendees.
Other wholesale cross-border CBDC projects making significant progress include MBridge, Project Dunbar, and Project Jura, among others.
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
Watch: CBDCs and BSV
New to blockchain? Check out CoinGeek’s Blockchain for Beginners section, the ultimate resource guide to learn more about blockchain technology.
