The Bank for International Settlements (BIS) created a prototype for multiple central bank digital currencies in collaboration with several central banks (mCBDCs).
According to the BIS, mCBDCs bring together national digital currencies on interoperable platforms. BIS was able to complete international transfers and foreign exchange operations in seconds using the prototype. This performance is exceptional given that transactions on the existing network of commercial banks take several days to complete. These operations could also be cut in half in terms of cost. According to BIS, the prototype demonstrated the potential of using digital currencies and distributed ledger technology (DLT).
The BIS is collaborating with the central banks of Hong Kong, Thailand, China, and the UAE on the mBridge project.
Existing payment methods
The BIS detailed the current international payment and foreign exchange system to highlight the potential benefits of mCBDCs. These operations are typically carried out across the globe via networks of large global banks that act as bridges between jurisdictions, a system known as correspondent banking.
Despite their critical role, these networks can be complex, possibly fragmented, and suffer from operational inefficiencies. Banks, for example, operate in different time zones and are thus bound by the operating hours of national payment systems. Legally mandated safeguards against money laundering, tax evasion, and terrorism financing are also in place.
According to the BIS’s most recent Annual Economic Report, mCBDCs have the greatest potential for improving the limitations of today’s systems. According to the report, they give central banks a “blank slate” to begin with, free of legacy arrangements or technologies.
Aside from the mBridge project, BIS is also working on other mCBDC developments. BIS announced “Project Dunbar” earlier this month, with the goal of developing prototype shared platforms for cross-border transactions using mCBDCs. The BIS is collaborating on this project with the central banks of Australia, Malaysia, Singapore, and South Africa. BIS stated that the study’s findings would most likely be published next year.