ANATOMY OF CBDC CROSS BORDER PAYMENT

What is CBDC?

Central bank digital currencies (CBDCs) are digital tokens issued by central banks. In a sense, they are the digital version of cash; their value is guaranteed by a central bank and they can be used by households and businesses to make payments. The key difference with reserves (which have been electronic and issued by central banks for decades) is that CBDCs are universally accepted by all households. In contrast to banknotes, they are completed digital.

CBDC: The Holy Grail of Cross-Border Payments

Cross-border payments are transactions in which the payer and the payee (as well as their financial institutions) are located in different jurisdictions. Due to the involvement of different national legal and regulatory frameworks, multiple currencies, different time zones and often numerous intermediaries and financial market infrastructures, they are more complex than domestic payments.

Today, cross-border payments are expensive (compared to domestic payments), can take several days and lack transparency, both in terms of costs and delivery times. This is mainly due to the complexity of the cross-border payment and settlement process, which includes the involvement of multiple entities in the execution of a cross-border transaction, the level of regulation – for example, anti-money laundering (AML), counter-terrorist financing (CTF) and know-your-customer (KYC) requirements – as well as capital requirements, differences in technical and operational standards across jurisdictions, and the prevalence of legacy systems and infrastructure.