Issue No 184
The Bank for International Settlement (BIS) Innovation Hub in its report, Project mBridge: Connecting economies through CBDC has validated the proposition that central bank digital currencies (CBDCs) can substantially increase the speed of cross-border payments from multiple days to near real-time, while also reducing cost of approximately $120 billion annually, stemming mainly from inefficiencies that introduce settlement risk to the cross-border payment and settlement system.
This is particularly beneficial to the emerging market and developing economies (EMDEs) which face greater challenges when global banks started to rationalise their correspondent networks and services as part of global de-risking in the aftermath of the Great Financial Crisis, leaving them with limited access to the global financial system as cross-border transactions are settled in a few major currencies and FX trading in non-major currency pairs remains limited. This leaves EMDEs exposed to the collateral effects of the monetary policies of the jurisdictions of these major currencies and attendant financial stability risks, such as credit cycles. In addition, given the limited access to international financial markets and currencies of these economies, they face heightened liquidity risks in times of global financial disruptions.