The Bank for International Settlements (BIS) announced the end of an international project to study cross-border payments through central bank digital currencies (CBDC).
Representatives of the Bank for International Settlements announced the completion of Project Icebreaker, aimed at testing the key functions and technical feasibility of combining various CBDC systems with the central banks of Israel, Norway, and Sweden.
According to the BIS report, Project Icebreaker examined in detail the hub-and-spoke solution, one of the ways to link internal CBDC systems of different countries. As part of the tests, a cross-border transaction was broken down into two domestic payments facilitated by intermediaries from the stock exchange. The system thus conducted transactions in “bridge currencies,” keeping CBDCs within the domestic ecosystem.
The BIS said this approach could reduce settlement and counterparty risks, as well as significantly increase the speed of cross-border transactions.
The model developed within the project implies a certain hub where providers of foreign currencies can submit quotes. The functionality of this hub is set up so that the system automatically selects the cheaper option to exchange CBDCs for “bridge currency.” This approach lowers the risk of insufficient liquidity in the desired currency pair, which is often the cause of excessive commissions and delays in transactions.
Therefore, cross-border payments can be made even if transactions between the two currencies are unavailable or “not favorable.” The use of “bridge currencies” in this case can reduce all risks to a minimum and promote competition between providers of foreign currencies.
According to Cecilia Skingsley, Head of the BIS Innovation Hub, the results of Project Icebreaker could be used by central banks to develop domestic retail CBDCs and make them further interoperable in cross-border transfers.
Andrew Abir, Deputy Governor of the Bank of Israel, said that the model developed under Project Icebreaker could become a “global standard” for central banks seeking to create effective and affordable cross-border payment systems with CBDCs.
The BIS’s international Project Icebreaker was launched in September 2022. Before that, bank representatives announced the successful completion of a cross-border wholesale CBDC pilot project involving the central banks of Hong Kong, Thailand, China, and the UAE.
