The Design of Cross-Border CBDCs

Despite the digitalization and innovation in payment transactions over the past few years, cross-border payments remain expensive, slow, and non-transparent. The G20 has therefore launched a multiyear program with 19 building blocks to enhance cross-border payments. Building block 19 deals with central bank digital currencies (CBDCs) as a possible solution. A recent report (BIS 2022) points to two key CBDC design choices for their cross-border capability: the definition of access to CBDCs and the interoperability of CBDC systems.

With regard to the definition of access, the report distinguishes between CBDCs for financial institutions (wholesale CBDCs, or wCBDCs) and for the general public (retail CBDCs or rCBDCs). There are three models of wCBDC access for foreign institutions: no access to CBDCs, access through domestic intermediaries, or direct access. In the case of rCBDCs, access for non-residents (tourists, refugees, etc.) could be direct or through financial intermediaries.

The report distinguishes between three models to ensure the interoperability of CBDC systems: (i) the use of common standards (e.g., ISO) in order to guarantee compatibility, (ii) interlinking the systems through technical and contractual agreements, which could facilitate data exchange, for example, and (iii) the creation of a multi-CBDC platform with common technical infrastructure and shared rules.

Fundamentally, the more open the access and the more interoperable the system, the better the “cross-border capabilities” of the CBDCs. However, the access and interoperability models described above entail cost/benefit considerations. Compromise solutions could, for example, be restricted access to CBDCs but a high degree of system interoperability. This might limit negative spillovers from capital outflows into the CBDCs or currency substitution. In light of this, there is unlikely to be a one-size-fits-all solution for all central banks, should central banks implement CBDCs on a large scale.

Loriana Crasnic, Shajinthavy Thambiah and Benjamin Müller
Swiss National Bank