Central bank digital currencies (CBDCs) can dramatically reduce the time needed for cross-border payments to clear from days to mere seconds, while cutting costs in half, according to a Tuesday (Sept. 28) report from Reuters.
The Bank of International Settlements’ (BIS) exploratory effort aimed at testing the digital forms of fiat currencies determined that cross-border transactions could be made in a couple seconds as opposed to three to five days, according to the report.
Interest in CBDC — also known as a digital bank note — has grown exponentially since the COVID-19 pandemic, according to the BIS website. Modifications in payments, finance and technology have also been driving forces in the shift. Utilizing CBDC in cross-border transactions may also allow users to avoid arduous arrangements involving payments being shuffled through a hub of financial institutions.
A 2021 BIS poll of central banks determined that 86% of respondents are researching the possibility of CBDCs, while 60% were trying out the technology and 14% were undertaking trial projects.
In addition to speeding up cross-border payments and making them less expensive, digital bank notes could increase financial inclusion.
As PYMNTS reported earlier this week, the Central Bank of Nigeria (CBN) digital currency, called the eNaira, is expected to launch in a few days. The CBN website promises easier financial transactions, provides peer-to-peer payments, allows users to check balances and see transaction histories and enables users to make in-store payments with an eWallet through QR codes.
CBDCs, which are being developed or discussed in numerous countries, received support recently from banking and financial institution HSBC, according to PYMNTS.
Read more: HSBC Says it Supports CBDC with Regulations
HSBC said CBDCs should be handled safely, with regulations and close monitoring for risks, adding that central banks will have to determine whether the new currencies could have a negative impact on the supply of credit, market activity and financial stability.