Benzinga - The Bank for International Settlements (BIS), which brings together central banks from around the world, says its Project Icebreaker experiment has shown the benefits of the cross-border payment model for central bank digital currencies (CBDCs).
The project, conducted with the help of the central banks of Israel, Norway, and Sweden, used a hub-and-spoke method to connect the countries' different national CBDC systems.
According to the BIS, the hub-and-spoke model used in Project Icebreaker can mitigate the risk of insufficient liquidity and reduce settlement and counterparty risk.
It also allows for competitive quotes for the exchange rate to be submitted to the hub, ensuring that end users can benefit from the best one.
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The BIS has previously conducted other CBDC cross-border experiments, such as Project Dunbar, which focused on wholesale use.
For the hub-and-spoke model to work, every CBDC system involved needs to operate 24/7 and have a hash time-locked contract, which is a form of smart contract that automatically executes transactions when triggered.
However, implementing this model in the real world would require a range of technology, policy, and legal considerations to be addressed.
These considerations include governance arrangements, the viability of the business model, liquidity provision, privacy, anti-money laundering and counter-terrorism financing compliance, and payment initiation-related standards.
Many central banks are considering issuing a CBDC within the next decade, and some countries, such as Nigeria, the Bahamas, the Eastern Caribbean, and Jamaica, have already done so.
China is also ahead of most countries with its CBDC trials. The Group of 20 industrialized nations has made exploring cross-border payment solutions a priority, and this experiment was a response to its call to action.
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