Central banks in Australia, Singapore, Malaysia, and South Africa will conduct a cross-border payments trial using different central digital currencies (CBDC).
The banks, through a statement, have today said the activity will be conducted to allow transactions to be settled more cheaply and easily.
A central bank digital currency is an electronic form of cash that can be exchanged much like you exchange traditional money but electronically whether via bank transfer, digital wallets, or card payments.
Early CBDC experiments took place in Finland in the 1990s and Venezuela in 2018. Today, many governments and central banks around the world are exploring the use of CBDCs, which are digital forms of existing currencies.
Most projects are still in the early stages and domestically focused, but developing global rules and frameworks for how CBDCs can be used internationally is complicated technically and politically.
The statement from the Reserve Bank of Australia, Bank Negara Malaysia, the Monetary Authority of Singapore, the South African Reserve Bank, and the bank of International Settlement’s Innovation Hub, which is leading said this project aims to develop prototype shared platforms for cross-border transactions using multiple CBDCs.
The banks added that these platforms would enable financial institutions to transact directly with each other in CBDCs, which would eliminate the need for intermediaries and reduce the time and cost of transactions.
The initiative will also explore different technical, governance, and operating designs. It will publish its results in early 2022.
Assistant governor Fraziali Ismail, Bank Negara in the statement said, CBDC has the potential to serve as the foundation of a more efficient international settlement platform.
“The multi-CBDC shared platform…has the potential to leapfrog the legacy payment arrangements and serve as a foundation for a more efficient international settlement platform,” Ismail said.