• The Bank for International Settlements (BIS) has successfully completed a retail CBDC pilot called Project Icebreaker.
• The project aimed to determine the efficacy of using CBDCs for cross-border payments between different currencies.
• The project showed that a hub-and-spoke system allowed cross-border transactions to be settled within seconds and reduced both counterparty and settlement risk.
Project Icebreaker
The Bank for International Settlements (BIS) has successfully completed a retail central bank digital currency (CBDC) pilot called Project Icebreaker, according to a March 6 press release.The BIS Innovation Hub Nordic Centre conducted the project in collaboration with the central banks of Israel, Norway, and Sweden.
Goal of Project
Project Icebreaker’s goal was to determine the efficacy of using CBDCs for cross-border payments between different currencies. Unlike domestic payments — which are now extremely cheap and efficient — cross-border payments remain expensive and slow. Sveriges Riksbank Deputy Governor Aino Bunge said: “Although domestic payments have become less expensive, safer and more efficient, payments across currencies are still associated with high costs, slow speed and risk… Project Icebreaker shows how different CBDC solutions in different countries could enable instant cross-currency transactions in a way that would greatly benefit the end users.“
Technical Feasibility Tested
Project Icebreaker aimed to test the „technical feasibility“ of conducting transactions in different currencies across borders between different CBDC ecosystems by essentially connecting them through a „hub-and-spoke“ system. This system allows multiple foreign exchange providers to participate in the ecosystem and submit „bids“ on their rates so that it can offer competitive exchange rates to retail users by choosing the lowest available rate automatically.
Benefits
The regulator said that its pilot showed that a hub-and-spoke system allowed cross-border transactions to be settled within seconds and reduced both counterparty and settlement risk. Additionally, bridge currencies were implemented which come into effect if “transactions between two end currencies are unavailable” or require higher fees than expected due to liquidity issues within certain markets or payment corridors.
Conclusion
Overall, this pilot has shown that utilizing CBDCs for cross border payments is possible as it offers various benefits such as low fees, faster processing times, increased security and reduced counterparty risks. It remains unclear when these technologies will be adopted on an international basis but it is clear that blockchain technology is becoming increasingly popular in finance sector use cases due its potential applications across industries globally