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- In a joint report to the G20, the IMF, the World Bank, and the Bank of International Settlements (BIS) suggested that a cross-border network of Central Bank Digital Currencies be established (CBDC)
- Some nations have struggled to completely integrate into the global financial system as cross-border banking connections have weakened during the last decade
- According to the study, a worldwide push for CBDC issuance would entail tight integration of different CBDCs and uniformity in design decisions, as well as specific measures to mitigate macro risks
The IMF, the World Bank, and the Bank of International Settlements (BIS) have proposed to the G20 in a joint report that a cross-border network of Central Bank Digital Currencies (CBDC), underpinned by efficient technological integration and proactive international cooperation, could be of significant benefit to the world economy. The paper emphasizes the importance of coordinating activities on a global scale and finding common ground between diverse national initiatives to realize the full benefits of digital currency, expanding the horizon beyond central banks’ separate investigations of CBDCs for local purposes. The research portrays a dismal image of the current cross-border payment system, which is plagued by long transaction delays and high costs as a result of an excessive number of intermediaries working across time zones throughout the correspondent banking process.
The IMF, the World Bank, and the BIS think that the formation of CBDCs may provide a clean slate for the global financial system, allowing it to greatly improve the efficiency of cross-border payments if handled correctly. The research balances the potential advantages of CBDCs for improved efficiency and economic inclusion against the global macro-financial consequences and dangers associated with their broad usage for cross-border flows. Furthermore, cross-border transfers are frequently opaque and difficult to track, posing a challenge for anti-money laundering (AML) and counter-terrorist financing (CFT) implementation. Some nations have struggled to completely integrate into the global financial system as cross-border banking connections have weakened during the last decade.
The foundation would include coordinated tactics, established practices, and a degree of structural integration, ranging from the establishment of new international payment infrastructures to targeted regulations. Limiting foreign CBDC ownership or transfers, for example, might be part of the latter. Dealing with the rapid money flow reversals permitted by more frictionless cross-border movements, as well as the possible influence on countries’ capacity to control their currency rates, are among these problems.
Money substitution might weaken governments’ monetary policy independence and pose dangers to both issuing and receiving countries if the foreign currency becomes simpler to obtain, hold, and spend. According to the research, a global push for CBDC issuance would include tight integration of various CBDCs and consistency of design choices, as well as particular steps to minimize these macro risks.
While the majority of nations are investigating or constructing CBDC pilots, central banks have adopted a range of approaches to CBDC design and have paced their research and development activities in different ways. China’s digital yuan is far ahead of the international game, and many nations, including France, Switzerland, Singapore, and Bahrain, have experimented with CBDCs for cross-border use. A similar level of regulatory coordination would be required, in addition to extensive infrastructural cooperation on technological interoperability and payment system access. This would imply the alignment of supervisory and oversight frameworks for cross-border flows, as well as the coordination of AML and CFT measures.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
