Worldwide bank notes Thomson Reuters
According to the Bank for International Settlements, digital fiat currencies can reduce costs and save time when transborder payments are made.
BIS presented the results of testing a prototype for a digital currency platform under the mCBDC Bridge Project.
The prototype demonstrated that payment transactions can be done in seconds, instead of taking days.
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According to a report from the Bank for International Settlements, digital currencies that are backed by central banks could significantly reduce time and cost associated with cross-border payments.
These findings are based on a pilot program for digital fiat currencies. The prototype of a digital currency platform demonstrated that cross-border transfers were faster than they used to be, with transfer times of just seconds instead of days. This shows that transactions can quickly work around large networks and arrangements made by banks, according to the BIS report.
A typical cross-border transaction that is processed via correspondent banking can take between three to five days for payment to be paid and settled. The prototype was able to reduce transaction times by between 2 and 10 seconds.
The prototype could reduce cross-border payments costs by as much as 50%, according to the BIS report. This is based on an estimate from PwC, an accounting and business consulting firm. These transactions can be costly in terms of foreign exchange and treasury operations.
According to the report, CBDCs could be used to help jurisdictions without a correspondent bank network.
The next phase, called mCBDC bridge, will include tests of business-use cases in international commerce.
A 2021 BIS study found that 86% of central banks are currently studying digital currencies or working on them. The Federal Reserve is currently studying the issue of a digital currency. A paper will be published soon.
According to The Block, Chairman Jerome Powell stated Tuesday that the Fed should develop a digital dollar subject to congressional approval.