- CBDC pilots demonstrate capability to sidestep complicated existing arrangements and reduce transaction time.
- Central bank institutions in Hong Kong, Thailand, China and UAE operating under the Bank of International Settlements are involved in the pilot scheme.
- Countries like China focus on replicating cash circulation through CBDCs.
The outcome of recent Central Bank Digital Currency (CBDC) pilots shows slashed cost and reduced transaction time. Cryptocurrencies currently utilized for making cross-border settlements, Ripple (XRP) and Stellar Lumens (XLM), are likely to face stiff competition from CBDCs.
CBDC pilot by Bank of International Settlements slashes transaction fees by 50%
Central banks worldwide are exploring the idea of a digital currency issued centrally in lieu of keeping up with technological development.
Several financial institutions have adopted Ripple’s real-time gross settlement system, which uses XRP as its native asset, over the years to reduce costs and time involved in moving funds cross-border. Ripple established a series of partnerships and collaborations, boosting the practical utility of XRP.
Competitor XLM, the native cryptocurrency for Stellar, an open-source blockchain payment system, solves the same problem.
In July the Bank of International Settlements released a blueprint of its instant cross-border payments solutions, Nexus. Though traditional banks have found Ripple’s solution helpful, Nexus will challenge payments giants by connecting regular instant payment systems (ISPs) across various jurisdictions.
Earlier today, BIS tweeted about the success of its successful pilot run
The common prototype platform for #mCBDC settlements tested by #BISInnovationHub and its partners completed international transfers and foreign exchange operations in seconds, compared with the usual several days https://t.co/OTSYc9I43A pic.twitter.com/bN0Y2gID0a— Bank for International Settlements (@BIS_org) September 28, 2021
The promising results of the pilot are likely to motivate further centralized institutions to participate and adopt BIS’s solution.
BIS has confirmed that the recent pilot reduced transaction settlement time from three to five days to a few seconds, and transactions were completed within a few seconds through a network of correspondent banks.
Governments worldwide are exploring the use of CBDCs to improve the working of their financial systems, unlike China, which is focused on exploring its retail utility. Central bank institutions in Hong Kong and Thailand were involved in the pilot. It has now expanded to include China and UAE’s central banks under the auspices of BIS.
Jerome Powell, active chair of the Federal Reserve, recently confirmed that the central banking system of the US is considering the launch of a digital currency.
We are working proactively to evaluate whether to issue a CBDC, and if so– in what form.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.