Focus Area:
Retail Cross border CBDC
Overview:
The Bank for International Settlements (BIS) and the central banks of Israel, Norway and Sweden collaborated on Project Icebreaker, which studied the potential benefits and challenges of using retail central bank digital currencies (CBDC) in international payments.
Project Icebreaker investigates the possible advantages and obstacles associated with implementing retail Central Bank Digital Currency (CBDC) for cross-border payments. It examines the technical viability of executing cross-border and cross-currency transactions using various Distributed Ledger Technology (DLT)-based CBDC proofs of concept.
Motivations:
The primary objective was to acquire a more profound comprehension of the utilized technologies and to recognize crucial technical and policy decisions and trade-offs that central banks must contemplate while designing CBDC implementations to enable seamless cross-border payments.
Financial institutions involved:
- Bank of Israel
- Norges Bank
- Sveriges Riksbank
- BIS Innovation Hub
Technology & Design partners:
- Ethereum Quorum
- Hyperledger Besu
- Corda DLT
Technical Solution:
The Icebreaker model streamlines cross-border payments by establishing connections between various rCBDC systems. FX providers, who hold memberships in multiple rCBDC systems, can exchange one currency’s rCBDC for another. Essentially, they would purchase a currency using rCBDC from one system and pay with another currency’s rCBDC from a different system. For example, if Alice in Sweden wanted to pay Bob in Israel, the FX provider would buy Swedish krona and sell Israeli shekels. An FX provider could be any entity, such as a financial institution holding wallets in two or more rCBDC systems, willing to assume FX risk to facilitate the transactions. The cost of holding and managing liquidity, along with the FX risk, would be reflected in the spread between the buy and sell rates for each specific currency.
The figure below illustrates different domestic rCBDC systems with diverse distribution models, exemplifying the potential variations in design and technology choices within the Icebreaker model. This representation draws inspiration from the three PoCs in the experiment. Additionally, it assumes that the FX provider utilizes a wallet provider for its FX wallet, though this might not always be the case, as an FX provider could act as its own wallet provider.
Conclusion:
Project Icebreaker demonstrates that central banks can maintain nearly complete autonomy in designing their domestic rCBDC systems while simultaneously participating in a structured interlinking arrangement that facilitates cross-border payments.
Source:
https://www.boi.org.il/media/31vbknly/icebreaker-full-report.pdf