International agencies have urged central banks to take interoperability into account when designing central bank digital currencies. Monday’s report by the Bank for International Settlements (BIS), the BIS Innovation Hub and the International Monetary Fund examined three options for cross-border integration that addressed challenges such as high costs, slow speed and lack of transparency.
This publication was created in response to the 2020 Committee on Payments and Market Infrastructures Report, which identified 19 building blocks for improving cross-border payments. According to the authors, most work on CBDCs has focused on domestic policy goals. The authors then examined variables like access by payment service providers, nonresidents, wholesale and retail CBDCs, and interaction with other non-CBDC infrastructure.
We looked at three approaches to interoperability. PSPs would be able to work across multiple systems if they are compatible, which is the adoption of common standards. Interlinking allows participants to create contractual agreements, technical links and standards to enable them to transact across multiple systems. There are many models that allow interlinking. A single technical system could also host multiple CBDCs.
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International collaboration is essential for cross-border payments. Many CBDC design features are still undetermined in many of the CBDC projects that are currently underway. The report stated that research is rapidly moving so it is important to seize the chance for coordination while it still exists. Coordination of design features could help CBDCs avoid unanticipated pitfalls and increase common Know Your Customer/Anti Money Laundering efforts. Although they are all compatible, the report highlighted that the three methods of interoperability discussed do not have to be mutually exclusive.