## ppea2021048

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---

### Executive summary — key findings and framing
- The G20 has made enhancing cross-border payments a priority and endorsed a comprehensive programme to address the key challenges.
- Faster, cheaper, more transparent and more inclusive cross-border payment services would support economic growth, international trade, global development and financial inclusion.
- This report:
  - takes stock of the international dimension of central bank digital currency (CBDC) projects and the extent to which they could be used for cross-border payments;
  - investigates possible macro-financial implications associated with cross-border use of CBDCs.
- The analysis does not imply that central banks mentioned in this report have reached a decision about issuance of a CBDC.
- To date, no major jurisdiction has launched a CBDC; most central bank CBDC investigations focus on domestic issues and use cases.
- Considerations are exploratory and examine cross-border implications in a situation in which CBDCs are widely used; domestic issuance will be subject to considerable further examination before cross-border use gathers pace.
- Enhancements in other areas of the cross-border payments programme—such as aligning regulatory, supervisory and oversight frameworks for cross-border payments, AML/CFT consistency, Payment versus Payment (PvP) adoption and payment system access—will be critical for cross-border CBDC use (building blocks 4, 5, 9 and 10).

### Two high-level cross-border CBDC scenarios
- Scenario 1 — Domestic-design conditioned cross-border access:
  - Availability of a retail CBDC of a given jurisdiction to anybody inside and outside that jurisdiction, with limited to no coordination between issuing central banks.
  - If design allows anonymous payments like cash, it would by default be accessible to foreign residents; relatively few central banks are considering fully anonymous systems.
  - Restrictions on cross-border use could be imposed via technological and regulatory design.
  - Conditioned by domestic design of a CBDC.
- Scenario 2 — Interoperability-based arrangements (main focus of the report):
  - Assumes some degree of interoperability between CBDCs based on access and settlement arrangements to facilitate cross-border use from two or more jurisdictions.
  - Can connect both wholesale and retail CBDCs across borders, imply strong cooperation among central banks, and include technological, market structure and legal aspects.
  - Relies on design choices of the interoperability infrastructure.

### Potential macro-financial implications and mitigation
- Introducing a CBDC could affect cross-border flows, financial stability, and currency substitution; implications depend on:
  - the level and nature of international adoption;
  - the degree of collaboration among issuing and recipient countries;
  - specific CBDC design choices, which could either increase or limit international use.
- Multilateral collaboration to agree on design principles will be key to addressing currency substitution risk, capital flow volatility, and contagion risk.
- Macro-financial implications of cross-border currency use are not exclusive to CBDCs and also exist for privately issued forms of money; CBDCs could allow jurisdictions greater room to mitigate adverse implications.
- CBDCs could enhance cross-border payment efficiency if design follows the “Hippocratic Oath for CBDC design” premise to “do no harm” (Group of central banks (2020)).

### How CBDCs could reduce frictions in cross-border payments
- Potential enhancements by CBDCs include:
  - offering secure settlement;
  - reducing costly and lengthy intermediation chains throughout the payment process;
  - eliminating operating hour mismatches by being accessible 24/7.
- Such enhancements depend on domestic design choices and on coordination/interoperability among jurisdictions.

### Need for further analytical and practical work
- Deeper analysis required on CBDC designs, especially regarding options for access and interlinking of CBDCs, including interoperability with non-CBDC payment infrastructures and arrangements.
- Further actions will investigate these questions from practical and theoretical perspectives and leverage synergies with other building blocks of the cross-border programme (e.g., global stablecoin arrangements, feasibility of new multilateral platforms).

### Context and mandate
- Cross-border payments face high cost, low speed, limited access, and insufficient transparency.
- The G20 in October 2020 endorsed a roadmap to enhance cross-border payments developed by the Financial Stability Board (FSB) in coordination with the Committee on Payments and Market Infrastructures (CPMI) and other organisations.
- CPMI report describes a set of 19 building blocks; building block 19 considers international dimension of CBDC design.
- This report responds to action 1 of the roadmap for building block 19:
  - (i) CPMI with BIS Innovation Hub, IMF and World Bank to conduct a stock-take of provisional domestic CBDC designs and central bank experimentation and the extent they could be used for cross-border payments (Section 2);
  - (ii) IMF to analyse international macro-financial implications of cross-border CBDC use (Section 3).
- CPMI established a Future of Payments Working Group to deliver on innovation-related objectives.

### Current state of live CBDCs (as of the report)
- Live retail CBDCs: Sand Dollar in The Bahamas and DCash in the Eastern Caribbean (DCash issued as part of a pilot arrangement; participation voluntary and guided by specific terms and conditions).
- Several advanced projects exist, but most central banks have not taken firm design and policy decisions to issue a CBDC.
- The report assumes establishment of CBDCs in more jurisdictions to anticipate cross-border support questions.

### Cross-border vs cross-currency payments
- Cross-border payments: payer and payee reside in different jurisdictions.
- Cross-currency payments: payer and payee are respectively debited and credited in different currencies.
- Payments within monetary unions or in a common invoice currency may be cross-border but not cross-currency.

---

### Stocktaking potential CBDC designs in cross-border payments — scenarios and survey evidence
- Two fundamentally different approaches:
  - A retail CBDC becomes available to anybody inside and outside that jurisdiction, with no specific coordination between issuing central banks.
  - Access and settlement arrangements are established among different retail and/or wholesale CBDCs, built on strong cooperation among central banks.
- In mCBDC arrangements, a currency conversion takes place:
  - Payer makes payment in one CBDC and payee receives it in a different CBDC.
  - Conversion could occur by exchanging one retail CBDC against another retail CBDC.
  - Alternatively, wholesale CBDCs could be used as safe settlement assets in PvP mechanisms.
- Survey of 50 central banks (first quarter of 2021):
  - Respondents: 18 advanced economies (AEs) and 32 emerging market and developing economies (EMDEs).
  - Questionnaire sent to 61 central banks; 11 did not respond or could not provide answers.
  - Key findings:
    - Most central banks have not yet taken a firm position (high share of “undecided” responses).
    - More than 25% of central banks are considering allowing retail CBDC use by non-residents.
    - Nearly 20% say that they are not yet considering this, but may do so in the future.
    - Only 8% of responding central banks are initially considering allowing the use of a domestically issued retail CBDC in other jurisdictions.
    - About a third may allow use abroad in the future.
    - At least a third of responding central banks may reconsider their cross-border restrictions if there were widespread use of a foreign CBDC in their jurisdiction (balanced between AEs and EMDEs).
- Identification and digital identity:
  - Effective identification is crucial to safety, integrity, AML/CFT, and equal access (BIS (2021)).
  - Tying CBDC design to a digital identity and including safeguards on data privacy are options to manage cross-border access and user identification.

### Cross-border aspects of selected advanced retail CBDC projects (examples)
- People’s Bank of China (PBC) — e-CNY / DC/EP:
  - Work since 2014; currently in a pilot phase.
  - Primary aim: domestic retail use.
  - Foreign tourists and business travellers could register for an entry-level e-CNY wallet with a foreign cell phone number during their stay in mainland China.
  - HKMA confirmed working with the Digital Currency Institute of the PBC on technical preparations for making cross-border payments using the e-CNY (Yue (2020)).
- Central Bank of The Bahamas (CBoB) — Sand Dollar:
  - Launched for residents on 20 October 2020.
  - Key aim: deepen financial inclusion.
  - Sand Dollar is only for domestic use; non-domestic payees are excluded.
  - Non-residents can transact and hold Sand Dollars when visiting The Bahamas by registering for the Tier 1 Sand Dollar wallet, with a holding limit of 500 Sand Dollars and a transaction limit of 1,500 Sand Dollars per month.
- Eastern Caribbean Central Bank (ECCB) — DCash:
  - Launched as a large-scale, year-long pilot in March 2021.
  - DCash allows purchases of goods and services across countries of the Eastern Caribbean Currency Union (ECCU), making it a cross-border CBDC from the outset.
  - Top policy goal: financial inclusion.
  - ECCB has been in initial discussions with other regional central banks regarding interoperability with other payment systems and platforms.

### Models of interoperability and mCBDC arrangements (stylised)
- Model 1 — Compatible CBDC systems:
  - Interoperability via common international standards (message formats, cryptographic techniques, data requirements, user interfaces).
  - Aligned legal, regulatory and supervisory standards to simplify KYC and transaction monitoring.
- Model 2 — Interlinked CBDC systems:
  - Additional interlinkages via a shared technical interface or a common clearing mechanism.
  - Shared technical interface, supported by contractual agreements, allows participants in one system to make payments to those in another.
- Model 3 — Single mCBDC system:
  - A single system across jurisdictions with a single set of rules, single technical system, and single set of participants.
  - Deeper integration brings more operational functionality and efficiency, but increases governance, control and policy hurdles.
- Preferences and operational roles (survey):
  - About a quarter of central banks consider incorporating interoperable features to reduce frictions.
  - Of those, over half are undecided on which model to adopt; remaining central banks examine all three models, with model 2 most preferred.
  - Some 14% of responding central banks are considering taking on operational roles, most notably in FX conversion.

### Ongoing projects and practical experiments (mapping to models)
- Model 1 (compatibility): CPMI-member central banks coordinate regulatory, supervisory and oversight frameworks and endorse common data standards.
- Model 2 (interlinking): Jasper-Ubin (MAS and BOC) linked domestic experimental wholesale CBDC networks (Corda and Quorum) using HTLC to eliminate settlement risk across DLT platforms; Project Jura explores DvP and PvP across euro and Swiss franc wholesale CBDCs.
- Model 3 (single mCBDC system): Project Inthanon-LionRock, Project Aber, mCBDC Bridge and Dunbar initiatives coordinated by BIS Innovation Hub exploring corridor networks, international settlement platforms, governance and connectivity.

---

### Opportunities and risks associated with cross-border use of CBDCs — frictions and alleviation
- Existing frictions in cross-border payments:
  - long transaction delays and high costs due to many intermediaries and time zone differences;
  - low traceability and lack of transparency for AML/CFT checks;
  - decline of cross-border banking relationships leaving inadequate access for some jurisdictions;
  - insufficient interoperability and standardisation in correspondent banking.
- How CBDCs could help (per model):
  - Model 1 — compatible systems: additional means to settle in central bank money across borders; could reduce fragmentation and concentration.
  - Model 2 — interlinked systems: could offer PvP settlement via technical interface and link with FX trading venues.
  - Model 3 — single mCBDC system: PvP by default, potential integration of trading venues, reduction in fragmentation and concentration.
- Specific improvements over correspondent banking frictions (summary of Table 1):
  - Legacy technology platforms: Model 1 enables efficiency gains; Model 2 common clearing mechanism reduces relationships; Model 3 may reduce relations though could add operational costs.
  - Limited operating hours: All models enable 24/7 operation.
  - Fragmented data formats: Models 1–3 progressively harmonise message standards.
  - Unclear FX rates and fees: Compatibility and common calculation improve transparency; single systems include FX conversion options.
  - Long transaction chains: CBDCs can settle instantly.
  - Complex compliance checks: Compatibility reduces uncertainty; single system aligns access requirements.

### International macro-financial implications
- Net effects depend on:
  - level and nature of international adoption (from niche remittance facilitation to widespread currency substitution);
  - design of CBDC and degree of collaboration among issuing and recipient countries;
  - potential feedback loops with productivity, market integration and arbitrage, international trade, and labor mobility.
- Potential increase in cross-border flows and capital flow management:
  - Benefits: cheaper remittances, shock buffering, market integration, better hedging.
  - Risks: greater contagion risks and sudden capital flow reversals; large gross foreign asset positions imply higher leverage and valuation effects.
  - Existing capital flow measures could be circumvented by new digital forms unless precluded through design or regulation.
  - Design/regulatory responses: preclude or limit use outside issuing country; wallets designed to allow local authorities to implement capital flow management; programmability to limit circulation; limits on non-resident holdings; onboarding protocols; tactical pricing (eg fees on very large or frequent cross-border transactions).
  - Wholesale vs retail CBDC effects: wholesale CBDC implies fewer larger transactions fitting existing controls; retail CBDC with public access to cross-border movement could create many small transactions challenging oversight.
  - Multilateral collaboration and coordinated design principles are key to limit arbitrage.

### Financial stability risks and currency substitution
- Cross-border CBDC availability could lower costs of obtaining and using foreign currency, strengthening network effects for established international currencies.
- Currency substitution risks:
  - Could become more widespread, especially in countries with high inflation and volatile exchange rates.
  - Foreign currency deposits are higher than 50% in more than 18% of countries worldwide.
  - Rapid currency substitution could undermine domestic policy efforts.
- Risks for issuing and receiving countries:
  - Issuing country: shifts in foreign demand could cause large capital flow movements affecting monetary policy.
  - Receiving country: reduced control over domestic liquidity, unstable money demand, weakened monetary transmission.
- Additional consequences:
  - Potential ineffectiveness of monetary policy if foreign currencies have uncorrelated business cycles; more volatile inflation affecting poorer households.
  - Central bank lender of last resort function undermined if banks hold large liabilities in non-domestic currency; central bank cannot create foreign currency.
  - Cheaper cross-border transactions could increase run risks on domestic banking sectors and currencies.
  - Lower transaction costs in foreign currencies could increase foreign currency exposure among households, firms, and banks.

### Reserve currency configurations and backstops
- CBDCs could affect currencies used for invoicing and international payments:
  - Reserve currencies like the dollar or euro could become more dominant if digitally available at lower cost and to a wider base.
  - Alternatively, new or less-used reserve currencies could gain if they offer cost and ease advantages.
- Currency internationalisation requires credibility, institutional stability, financial openness, rule of law, and geopolitical forces — factors that move slowly.
- CBDCs may accelerate changes but not dramatically in the short term; regional patterns may evolve more rapidly.
- Backstops:
  - Questions on redesigning regional and global backstops (eg IMF); cooperation between regional and global backstops may become increasingly important.

### Early central bank thinking on cross-border CBDC risks (survey)
- Central banks ranked risks on a four-point scale (4=Very important; 3=Important; 2=Somewhat important; 1=Not so important). Sample: 18 AEs and 32 EMDEs.
- Key concerns:
  - Facilitation of tax avoidance and loss of oversight by domestic authorities due to foreign CBDC use.
  - Undesirable volatility in FX rates.
  - Use of your jurisdiction’s CBDC abroad.
  - Other highlighted risks: ease of settlement, AML/CFT, cyber risk, emergence of a dominant foreign CBDC or global stablecoin, illicit finance, consumer protection (data privacy), operational risks, redundancy of payment systems.

---

### Conclusion and considerations for further work
- Key findings:
  - Many central banks investigate CBDC risks, benefits and designs with strong domestic focus; only a few have made firm design choices.
  - CBDC implications extend beyond borders even if intended for domestic use, necessitating coordination.
  - If coordinated successfully, CBDCs could leverage a clean slate to enhance cross-border payments over time and with other improvements.
  - CBDC arrangements imply degrees of international integration from compatibility to international payment infrastructures.
- Practical progress:
  - CBDCs could facilitate enhanced cross-border payments conceptually; practical efforts map to interoperability and multilateral platforms.
  - Enhancements in other building blocks critical for cross-border CBDC use: aligning regulatory, supervisory and oversight frameworks; AML/CFT consistency; PvP adoption; payment system access.
  - International adoption likely to proceed at different speeds across jurisdictions, requiring interoperability with legacy arrangements.
- Areas requiring further exploration:
  - interoperability between existing and new infrastructures;
  - access to and control of central bank money;
  - distinction between wholesale and retail CBDC;
  - role of private industry actors;
  - interoperability with non-CBDC payment arrangements.
- Subsequent actions and timelines:
  - Action 2: Starting in August 2021, completion in July 2022 — develop options for access to and interlinking CBDCs to improve cross-border payments.
  - Action 3: Assess practical and technological complexities of implementing different CBDC arrangement designs and interoperability types, and conduct trials and experiments facilitating efficient cross-currency CBDC payments.
  - These topics relate to building blocks 4, 5, 9 and 10 and connect to CPMI (2020a, b) and FSB (2020c) analyses (building blocks 13 and 17).

### Annex highlights — selected projects for cross-border CBDC arrangements
- Project Jasper-Ubin (Model 2):
  - BOC and MAS linked experimental wholesale CBDC networks (Corda and Quorum) using Hash Time-Locked Contracts (HTLC) to enable atomic Canadian dollar – Singapore dollar payments and eliminate settlement risk across different DLT platforms.
  - Project Ubin expanded to explore issuance and transaction of multiple digital currencies on a single common platform (Model 3).
- Project Jura (Model 2):
  - Bank of France, Swiss National Bank and BIS Innovation Hub with private sector consortium exploring exchange of a French digital security and euro wholesale CBDC via DvP and euro wholesale CBDC against Swiss franc wholesale CBDC via PvP on a DLT platform.
- Inthanon-LionRock (Model 3):
  - BOT and HKMA explored a “corridor network” linking two domestic wholesale CBDC networks; each central bank issues its own wholesale CBDC separated from cross-border transactions.
  - Settlement uses depositary receipts (DR) and FX conversion options settle in an atomic PvP fashion.
- mCBDC Bridge (Model 3):
  - BIS Innovation Hub with HKMA, BOT, Digital Currency Institute of the PBC and Central Bank of the UAE exploring a multi-currency DLT platform pursuing atomic PvP for FX transactions and studying scalability, interoperability, privacy and governance.
- Project Dunbar (Model 3):
  - BIS Innovation Hub Singapore Centre with MAS to develop connectivity models and a prototype multi-currency DLT-based settlement platform including native issuance of multiple wholesale CBDC, smart-contract automation for FX and liquidity management, and governance design for central bank control over access and use.
- Project Aber (Model 3):
  - Led by the Saudi Central Bank and Central Bank of the UAE using DLT and a dual-issued digital currency as a unit of settlement between commercial banks; permissioned DLT with primary, bilateral and private ledgers to enable settlement even if central bank is unavailable.

### Annex highlight — Future of Payments Working Group (FoP) composition (selected)
- Chair: Sveriges Riksbank: Cecilia Skingsley
- Members include representatives from central banks such as:
  - Central Bank of Argentina; Reserve Bank of Australia; National Bank of Belgium; Central Bank of Brazil; Bank of Canada; The People's Bank of China; European Central Bank; Bank of France; Deutsche Bundesbank; Hong Kong Monetary Authority; Reserve Bank of India; Bank of Italy; Bank of Japan; Bank of Korea; Netherlands Bank; Central Bank of the Russian Federation; Saudi Central Bank; Monetary Authority of Singapore; South African Reserve Bank; Bank of Spain; Sveriges Riksbank; Swiss National Bank; Central Bank of the Republic of Turkey; Bank of England; Board of Governors of the Federal Reserve System; Federal Reserve Bank of New York.
- Observers include: Bank for International Settlements; Basel Committee on Banking Supervision; Financial Stability Board; Financial Action Task Force; International Monetary Fund; World Bank Group; BIS Innovation Hub.
- Secretariat: CPMI Secretariat.
- Drafting team notes mark specific individuals as members of the drafting team and lead of the drafting team.

*Italic: IMF staff summary of ppea2021048*

### Executive Summary ......................................................................................................

### Executive Summary

### Executive summary — key findings and framing
- The G20 has made enhancing cross-border payments a priority and endorsed a comprehensive programme to address the key challenges.
- Faster, cheaper, more transparent and more inclusive cross-border payment services would support economic growth, international trade, global development and financial inclusion.
- This report:
  - takes stock of the international dimension of central bank digital currency (CBDC) projects and the extent to which they could be used for cross-border payments;
  - investigates possible macro-financial implications associated with cross-border use of CBDCs.
- The analysis does not imply that central banks mentioned in this report have reached a decision about issuance of a CBDC.
- To date, no major jurisdiction has launched a CBDC; most central bank CBDC investigations focus on domestic issues and use cases.
- The report’s considerations are exploratory and examine cross-border implications in a situation in which CBDCs are widely used; domestic issuance will be subject to considerable further examination before cross-border use gathers pace.
- Enhancements in other areas of the cross-border payments programme—such as aligning regulatory, supervisory and oversight frameworks for cross-border payments, AML/CFT consistency, Payment versus Payment (PvP) adoption and payment system access—will be critical for cross-border CBDC use (building blocks 4, 5, 9 and 10).

### Two high-level cross-border CBDC scenarios
- Scenario 1 — Domestic-design conditioned cross-border access:
  - Availability of a retail CBDC of a given jurisdiction to anybody inside and outside that jurisdiction, with limited to no coordination between issuing central banks.
  - If the design allows for anonymous payments like cash, it would by default be accessible to foreign residents; however, relatively few central banks are considering fully anonymous systems.
  - Various restrictions on cross-border use could be imposed via technological and regulatory design.
  - This scenario is conditioned by the domestic design of a CBDC.
- Scenario 2 — Interoperability-based arrangements (main focus of the report):
  - Assumes some degree of interoperability between CBDCs based on access and settlement arrangements to facilitate cross-border use from two or more jurisdictions.
  - Can connect both wholesale and retail CBDCs across borders, imply strong cooperation among central banks, and include technological, market structure and legal aspects.
  - Relies on design choices of the interoperability infrastructure.

### Potential macro-financial implications and mitigation
- Introducing a CBDC could affect cross-border flows, financial stability, and currency substitution; the implications depend on:
  - the level and nature of international adoption;
  - the degree of collaboration among issuing and recipient countries;
  - specific CBDC design choices, which could either increase or limit international use.
- Multilateral collaboration to agree on design principles will be key to addressing central bank concerns regarding currency substitution risk, capital flow volatility, and contagion risk.
- Macro-financial implications of cross-border currency use are not exclusive to CBDCs and also exist for privately issued forms of money, but CBDCs could allow jurisdictions greater room to mitigate adverse implications.
- CBDCs could enhance cross-border payment efficiency if design follows the “Hippocratic Oath for CBDC design” premise to “do no harm” (Group of central banks (2020)).

### How CBDCs could reduce frictions in cross-border payments
- Potential enhancements by CBDCs include:
  - offering secure settlement;
  - reducing costly and lengthy intermediation chains throughout the payment process;
  - eliminating operating hour mismatches by being accessible 24/7.
- Such enhancements depend on domestic design choices and on coordination/interoperability among jurisdictions.

### Need for further analytical and practical work
- It is necessary to deepen analysis on CBDC designs, especially regarding options for access and interlinking of CBDCs, including interoperability with non-CBDC payment infrastructures and arrangements.
- Further actions will investigate these questions from practical and theoretical perspectives and leverage synergies with other building blocks of the cross-border programme (e.g., global stablecoin arrangements, feasibility of new multilateral platforms).

---

### Introduction — context and mandate
- Cross-border payments face high cost, low speed, limited access, and insufficient transparency.
- The G20 in October 2020 endorsed a roadmap to enhance cross-border payments developed by the Financial Stability Board (FSB) in coordination with the Committee on Payments and Market Infrastructures (CPMI) and other organisations.
- Frictions include fragmented and truncated data formats, complex processing of compliance checks, limited operating hours, legacy technology platforms, long transaction chains, funding costs and weak competition.
- A CPMI report (CPMI (2020a, b)) describes necessary elements in the form of a set of 19 building blocks (see Annex 2).
- One building block (19) considers how to factor an international dimension into CBDC design.
- This report responds to action 1 of the roadmap for building block 19:
  - (i) CPMI in collaboration with BIS Innovation Hub, IMF and World Bank to conduct a stock-take of provisional domestic CBDC designs and central bank experimentation and the extent they could be used for cross-border payments (Section 2);
  - (ii) IMF in cooperation with other relevant stakeholders to analyse international macro-financial implications of cross-border CBDC use (Section 3).
- The CPMI established a Future of Payments Working Group to deliver on these innovation-related objectives.

### Current state of live CBDCs and interpretation
- As of the report:
  - There are just two live retail CBDCs: the Sand Dollar in The Bahamas and DCash in the Eastern Caribbean (DCash issued as part of a pilot arrangement; participation voluntary and guided by specific terms and conditions).
  - Several advanced projects exist, but most central banks have not taken firm design and policy decisions to issue a CBDC.
- The report should not be interpreted as indicating that central banks have decided to issue CBDCs.
- The report assumes establishment of CBDCs in more jurisdictions to anticipate questions necessary for CBDCs to support enhanced cross-border payments.

### Cross-border vs cross-currency payments
- Cross-border payments: payer and payee reside in different jurisdictions.
- Cross-currency payments: payer and payee are respectively debited and credited in different currencies.
- Payments within monetary unions or in a common invoice currency may be cross-border but not cross-currency.

### Clean-slate opportunity and interoperability imperative
- CBDCs offer an opportunity to start with a “clean slate”; taking the international dimension into account and committing to interoperability, consistent standards and coordination of CBDC designs could avoid many problems inherent in legacy technologies.
- If CBDCs are not designed with international dimension in mind, fragmentation similar to existing payment systems is possible.
- Central banks are considering both retail and wholesale CBDC arrangements, with differing motivations and objectives.

### Domestic CBDC designs and cross-border considerations: a primer
- Improving cross-border payments efficiency is an important motivation for CBDC work, alongside domestic needs.
- Retail-side remittances today are mostly sent through money transfer operators that leverage global networks; known issues include:
  - generally high fees;
  - remitters sometimes lack guarantee that funds reach recipient in full;
  - absence of interoperability between domestic payment systems.
- Wholesale-side inefficiencies due to lack of payment system interoperability are patched by the correspondent banking network, which can be costly and slow for long correspondent chains.
- Many obstacles are rooted in differences among domestic legislations, including differences in AML/CFT implementation, rules on settlement finality, participation criteria for payment systems with central bank money settlement, and conflict of laws.
- CBDCs are seen as an opportunity to simplify and enhance cross-border payment performance and make settlement available 24/7 even outside closed-loop solutions or end-to-end money transfer operator control.
- CBDC issuance and use could simplify intermediation chains, increase speed and lower costs; cross-border payments efficiency is an important motive for CBDC issuance in a survey of 66 central banks, especially for wholesale CBDC projects, with the importance increasing for central banks in advanced stages of CBDC work (survey scale: 1=Not so important; 2=Somewhat important; 3=Important; 4=Very important).

*Source: CPMI; BIS Innovation Hub; IMF; World Bank.*

### 2. Stocktaking potential CBDC designs in cross-border payments

### 2. Stocktaking potential CBDC designs in cross-border payments

### Scenarios for cross-border CBDC use
- Two fundamentally different approaches:
  - A retail CBDC of a given jurisdiction becomes available to anybody inside and outside that jurisdiction, with no specific coordination between the issuing central banks.
  - Access and settlement arrangements are established among different retail and/or wholesale CBDCs, built on strong cooperation among central banks.
- If a retail CBDC design allows anonymous payments like cash, it would by default be accessible to foreign residents; however, relatively few central banks are considering fully anonymous systems (Auer, Cornelli and Frost (2020)).
- A CBDC could be designed to be subject to restrictions on cross-border use imposed by the issuing central bank.
- In mCBDC arrangements, a currency conversion takes place:
  - The payer could make a payment in one CBDC and the payee receives it in a different CBDC.
  - Currency conversion could occur by exchanging one retail CBDC against another retail CBDC.
  - Alternatively, wholesale CBDCs could be used as safe settlement assets in PvP mechanisms for settlement of cross-currency retail CBDC transactions and for FX settlement of cross-currency transactions in commercial bank money or central bank money.
- Further work is warranted on how different CBDC arrangements could facilitate FX mechanisms.

### Current central bank thinking (survey evidence)
- A recent survey of 50 central banks in the first quarter of 2021 explored initial thinking on CBDCs’ cross-border use.
  - The survey includes responses from 18 advanced economies (AEs) and 32 emerging market and developing economies (EMDEs).
  - The questionnaire was sent to 61 central banks during the first quarter of 2021. Of these, 11 central banks either did not respond or indicated that they are not able to provide answers at this time.
- Key survey findings:
  - Most central banks have not yet taken a firm position, as evidenced by a high share of “undecided” responses.
  - More than 25% of central banks are considering allowing retail CBDC use by non-residents.
  - Nearly 20% say that they are not yet considering this, but may do so in the future.
  - Only 8% of responding central banks are initially considering allowing the use of a domestically issued retail CBDC in other jurisdictions.
  - About a third may allow use abroad in the future.
  - At least a third of responding central banks may reconsider their cross-border restrictions if there were widespread use of a foreign CBDC in their jurisdiction (with a balanced picture between AEs and EMDEs).
- Identification and digital identity:
  - Effective identification is crucial to safety, integrity, AML/CFT, and equal access (BIS (2021)).
  - Tying CBDC design to a digital identity and including safeguards on data privacy are options to manage cross-border access and user identification.
  - Issuing central banks can grant access to wallets to residents only, or set conditions for non-resident access; cooperating central banks may coordinate KYC, AML/CFT monitoring and privacy levels.

### Cross-border aspects of advanced retail CBDC projects (examples)
- People’s Bank of China (PBC) — e-CNY / DC/EP:
  - Work since 2014; currently in a pilot phase.
  - Primary aim: domestic retail use.
  - Foreign tourists and business travellers could register for an entry-level e-CNY wallet with a foreign cell phone number during their stay in mainland China.
  - If an understanding can be reached with foreign jurisdictions to avoid spillover effects, interoperability could be enabled between e-CNY and other retail systems and conversion processed at virtual borders between digital wallets.
  - The PBC aims to work with the private sector to ensure ongoing compliance with relevant AML/CFT rules.
  - Potential future use for Renminbi-invoiced trade is subject to consultation with other central banks and entities.
  - Hong Kong Monetary Authority (HKMA) confirmed working with the Digital Currency Institute of the PBC on technical preparations for making cross-border payments using the e-CNY (Yue (2020)).
- Central Bank of The Bahamas (CBoB) — Sand Dollar:
  - Launched for residents on 20 October 2020.
  - Key aim: deepen financial inclusion.
  - Sand Dollar is only for domestic use; non-domestic payees are excluded.
  - Non-residents can transact and hold Sand Dollars when visiting The Bahamas by registering for the Tier 1 Sand Dollar wallet, with a holding limit of 500 Sand Dollars and a transaction limit of 1,500 Sand Dollars per month.
  - Holders can integrate Sand Dollar accounts with traditional bank accounts, which can be used to make cross-border payments via traditional channels.
  - Commercial banks remain the only authorised actors for making payments in and out of Bahamian dollars; Sand Dollar will not affect current capital account restrictions.
- Eastern Caribbean Central Bank (ECCB) — DCash:
  - Launched as a large-scale, year-long pilot in March 2021.
  - DCash allows purchases of goods and services across countries of the Eastern Caribbean Currency Union (ECCU), making it a cross-border CBDC from the outset.
  - Top policy goal: financial inclusion, with cross-border aspects key given importance of trade and international remittances.
  - ECCB has been in initial discussions with other regional central banks regarding interoperability with other payment systems and platforms to enable remittances and trade in the region.
  - Medium-term plan: focus on cross-border integration within the ECCU before expanding beyond that.

### Models of interoperability and mCBDC arrangements
- Three stylised models of payment system interoperability for mCBDC arrangements (conceptual illustrations):
  - Model 1 — Compatible CBDC systems:
    - Interoperability through adherence to common international standards (message formats, cryptographic techniques, data requirements, user interfaces).
    - Aligned legal, regulatory and supervisory standards to simplify KYC and transaction monitoring.
    - Achieving sufficient compatibility between national CBDC systems takes time without coordinated policy action.
  - Model 2 — Interlinked CBDC systems:
    - Additional interlinkages via a shared technical interface or a common clearing mechanism.
    - A shared technical interface, supported by contractual agreements, allows participants in one system to make payments to those in another.
    - A common clearing mechanism links systems through designated settlement accounts.
    - Wide choice of interlinking options exists; none are likely easy to implement; many projects historically do not deliver anticipated benefits or fail operationally (World Bank (2014)).
  - Model 3 — Single mCBDC system:
    - A single mCBDC system across jurisdictions with a single set of rules, single technical system, and single set of participants.
    - Deeper integration can bring more operational functionality and efficiency, but increases governance, control and policy hurdles.
    - Creating a single system applies the concept of creating new multilateral payment platforms (see building block 17).
- mCBDC arrangements can mitigate cross-border and cross-currency risks and frictions while reinforcing central bank money as an anchor and primordial settlement asset.
- mCBDC arrangements could be preferable to private sector global stablecoins by focusing on national CBDCs with access frameworks and interoperability options rather than creating a new unit of account.

### Ongoing projects and practical experiments
- Most current projects focus on interlinking wholesale CBDCs, though interlinking can also be implemented on a retail level.
- Examples mapped to models:
  - Model 1 (compatibility): many CPMI-member central banks coordinate regulatory, supervisory and oversight frameworks and endorse common data standards and compatibility.
  - Model 2 (interlinking): Jasper-Ubin (2019) — MAS and BOC linked domestic experimental wholesale CBDC networks by synchronising payment actions without a trusted third party or common platform; demonstrated elimination of settlement risk across different DLT platforms (Corda in Canada and Quorum in Singapore).
    - MAS expanded to explore how multiple digital currencies could be issued and transacted on a single common platform (Model 3).
    - Project Jura: Bank of France, Swiss National Bank, BIS Innovation Hub and private sector consortium exploring euro wholesale CBDC exchanged against Swiss franc wholesale CBDC through a PvP settlement mechanism on a DLT-platform, settled between banks domiciled in France and Switzerland.
  - Model 3 (single mCBDC system): Project Inthanon-LionRock, Project Aber, mCBDC Bridge and Dunbar initiatives coordinated by BIS Innovation Hub with participation of several central banks.
    - Inthanon-LionRock operating model: cross-border payments processed through a jointly operated “corridor network” linking two separate domestic wholesale CBDC networks; each central bank issues its own wholesale CBDC on its domestic settlement network separated from cross-border transactions.
    - mCBDC Bridge explores creation of an international settlement platform for execution of wholesale transactions.
    - Dunbar will explore governance and connectivity models for cross-border transactions using mCBDCs to inform a potential future international settlement network.
- Many projects are expected to illuminate governance, implementation, and policy issues across different technologies and stakeholders.

### Central bank considerations regarding interoperability and FX conversion
- About a quarter of central banks consider incorporating interoperable features to reduce frictions in cross-border and cross-currency settlement when designing their CBDC.
  - Of those central banks, over half are undecided on which model to adopt.
  - Remaining central banks are examining all three stylised models; the most preferred choice is model 2 (interlinking domestic CBDC system with a foreign system).
- Some 14% of responding central banks are considering taking on operational roles, most notably in FX conversion.
  - Potential central bank roles include providing CBDC liquidity, facilitating and monitoring smooth operation of FX conversion.
  - Examples of operational FX conversion handling are found in projects such as Inthanon-LionRock.

*Italic source: IMF staff summary of "2. Stocktaking potential CBDC designs in cross-border payments" from the provided PDF content.*

### 3. Opportunities and risks associated with cross-border use of CBDCs

### 3. Opportunities and risks associated with cross-border use of CBDCs

### Existing frictions in cross-border payments
- Cross-border payments suffer from:
  - long transaction delays and high costs due to involvement of a high number of intermediaries across different time zones in the correspondent banking process.
  - low traceability and lack of transparency, causing frictions regarding AML/CFT checks.
  - decline of cross-border banking relationships over the past decade, leaving some jurisdictions with inadequate access to the global financial system.
  - insufficient interoperability and standardisation in the traditional correspondent banking model, resulting in numerous risks and operational complexities.
- Legacy correspondent banking frictions are depicted in Graph 6 (source: R Auer, P Haene and H Holden).

### How CBDCs could help alleviate existing frictions
- Three stylised models for cross-border use of CBDC (models 1–3) do not prescribe FX mechanisms but could enable interoperability and improvements:
  - Model 1 — compatible CBDC systems:
    - Provide an additional means to settle transactions in central bank money across borders.
    - Coupled with open, competitive, compatible domestic payment systems, could allow a more diverse group of banks and non-banks wholesale access to central bank money for settling payments.
    - Could reduce fragmentation and concentration in payments.
  - Model 2 — interlinked CBDC systems:
    - Could build on model 1 improvements and offer additional safety via PvP settlement included through a technical interface between domestic systems.
    - New technologies could implement PvP through novel means (eg BOC and MAS (2019)).
    - Common clearing mechanisms could add efficiencies, especially when linked with FX trading venues.
  - Model 3 — single mCBDC multi-currency system:
    - Could offer the same improvements as interlinking systems with additional integration: all FX settlements would be PvP by default, rather than requiring routing or specific settlement instructions.
    - Trading venues could be integrated into mCBDC systems, potentially reducing complexity, fragmentation and concentration in currency markets (Bank of Thailand and Hong Kong Monetary Authority (2020)).
    - Examples: Project Dunbar and Project Aber, including joint issuance of a CBDC used in a single mCBDC arrangement; in Project Aber the Saudi riyal and UAE dirham were effectively guaranteed to have a fixed exchange rate to both local currencies for the duration of the proof of concept.
- CBDCs could alleviate counterparty risks because CBDCs represent a claim on the central bank and constitute the safest settlement asset available.
- Increased central bank money in digital form could facilitate liquidity flows across borders, allowing a more efficient allocation of resources globally and helping finance growth in some regions.

### Potential improvements of different CBDC arrangements to correspondent banking frictions (summary of Table 1)
- Legacy technology platforms:
  - Model 1: Compatible systems allow for efficiency gains in existing banking relations.
  - Model 2: A common clearing mechanism could reduce the number of relationships and provide economies of scale.
  - Model 3: A single system does not require such relations (however, a single system may add to operational costs).
- Limited operating hours:
  - All models: CBDCs can be open 24/7, eliminating mismatch of operating hours.
- Fragmented and truncated data formats:
  - Model 1: Compatible message standards allow payments to flow without data loss or manual intervention.
  - Model 2: The message standard (eg ISO 20022) adopted by the interlinkage would act to harmonise standards across systems.
  - Model 3: Single message standard across the system eliminates mismatches.
- Unclear FX rates and incoming fees:
  - Model 1: Compatibility requirements for wallet providers could enable users to calculate fees and rates prior to a payment.
  - Model 2: Common calculation of rates and fees for transfers using any interlinkage would aid transparency.
  - Model 3: A single system would likely be designed to include options for FX conversion.
- Long transaction chains:
  - Model 1: CBDCs could settle instantly, reducing the need for status updates.
- Complex processing of compliance checks:
  - Model 1: Compatible compliance regimes reduce uncertainty and costs.
  - Model 2: Interlinking systems do not impact multiple or conflicting compliance requirements.
  - Model 3: Single set of access requirements means compliance could be equivalent across the system.

### International macro-financial implications of cross-border CBDC use
- Net effects depend on:
  - level and nature of international adoption (ranging from niche remittance facilitation to widespread currency substitution).
  - design of CBDC and degree of collaboration among issuing and recipient countries.
  - potential feedback loops with productivity, market integration and arbitrage, international trade, and labor market mobility.
- All three models could give rise to the following implications; effects are larger the more integrated CBDCs are and the larger/wider cross-border flows become. Tight integration and uniformity of design (models 2 and 3) could facilitate risk-mitigating measures (eg limitations on foreign CBDC holdings and transfers).

### Potential increase in cross-border flows and capital flow management
- Benefits:
  - cheaper and more accessible remittances benefit senders and recipients, buffer economic shocks, and stimulate growth.
  - markets could become more integrated, offering investment and risk-sharing opportunities and facilitating hedging.
- Risks:
  - greater contagion risks and sudden capital flow reversals; large gross foreign asset positions imply higher leverage and greater valuation effects with knock-on effects on current account balances and potential balance of payments problems (Obstfeld (2004, 2012)).
  - capital flow volatility could increase as herd effects from less-informed investors materialise.
- Existing capital flow management measures could be circumvented by new digital forms of payments, including CBDCs, unless precluded through design or regulation.
- Possible design and regulatory responses:
  - issuing central banks could design CBDCs to preclude or limit use outside the issuing country.
  - wallets in recipient countries could be designed to allow local authorities to implement capital flow management measures.
  - programmability of CBDCs could potentially be used to limit circulation.
  - limits on non-resident holdings, requisite onboarding protocols for users and merchants, or tactical pricing mechanisms (eg fees on very large or frequent cross-border transactions) could limit cross-border use.
- Wholesale versus retail CBDC effects:
  - Wholesale CBDC arrangements (aggregating retail transactions and funneling through regulated financial institutions) imply a smaller number of larger transactions; application of controls likely fits more readily within existing frameworks.
  - Retail CBDC with public access to move CBDC cross-border directly could lead to a greater number of small transactions, challenging authorities’ ability to oversee transactions under existing frameworks.
- Multilateral collaboration and coordinated design principles will be key to limiting arbitrage and meeting needs of all countries; technical assistance by international organizations can help bridge capacity gaps.

### Potential financial stability risks and currency substitution
- Cross-border availability of CBDCs could lower costs of obtaining, storing and spending foreign currency, strengthening network effects for established international currencies and potentially enhancing the status of those currencies at the expense of others.
- Currency substitution risks:
  - could become more widespread via adoption of a foreign CBDC, especially in countries with high inflation and volatile exchange rates.
  - currency substitution is already widespread and persistent (foreign currency deposits are higher than 50% in more than 18% of countries worldwide).
  - rapid currency substitution could undermine countries’ efforts to redress domestic policies.
- Risks for issuing and receiving countries:
  - For issuing country: shifts in foreign demand for CBDC could mean large movements in capital flow that might interfere with monetary policy.
  - For receiving country: currency substitution reduces domestic central bank control over domestic liquidity, reduces stability of money demand, and might weaken the monetary transmission mechanism.
- Additional consequences:
  - If foreign currencies are issued by countries with uncorrelated business cycles, receiving countries may suffer ineffective monetary policy control and more volatile inflation, disproportionately affecting poorer and more vulnerable households.
  - Currency substitution can undermine central bank lender of last resort function if domestic banks have large liabilities in non-domestic currency; central bank cannot create foreign currency and must rely on reserves or foreign central bank liquidity provision.
  - Cheaper and faster cross-border transactions could increase risks for runs on domestic banking sectors and currencies; runs could be rapid in emerging markets and developing countries.
  - Lower transaction costs in foreign currencies could increase exposures to foreign currency risk among households, firms, and potentially banks, with negative effects on financial stability.
- Policy and technical questions:
  - How to limit CBDC circulation, transactions, and holdings technically?
  - Policy desirability and appropriateness of imposing restrictions on cross-border CBDC transactions.
  - Design choices (limits on non-resident holdings, onboarding protocols, tactical pricing) may reduce domestic and international risks.
  - Multilateral coordination on design principles is necessary to limit arbitrage.

### Reserve currency configurations and backstops
- CBDCs could affect currencies used for international transactions (invoicing and paying for imports).
  - In one scenario, reserve currencies like the dollar or euro could become even more dominant if available digitally at lower cost and to a wider user base.
  - Alternatively, new reserve currencies could arise or currently less-used reserve currencies could become more ubiquitous if they offer significant advantages in cost and ease of use.
- Programmability of CBDCs could make certain currencies more appropriate and easier to use in global trade and finance, affecting demand.
- Currency internationalisation requires credibility, stability of institutions, degree of financial openness, rule of law, and geopolitical forces — factors that tend to move slowly.
- CBDCs may accelerate changes to reserve currency configuration but may not change it dramatically in the short term; regional patterns may evolve more rapidly and a new regional CBDC with attractive features could tip balance toward a regional reserve currency.
- Backstops:
  - Questions arise on redesigning backstops: regional backstops may be reinforced and become more credible alongside global backstops (eg IMF).
  - Cooperation between regional and global backstops may become increasingly important.

### Early central bank thinking on cross-border CBDC risks (survey findings)
- Central banks ranked importance of specific risks from cross-border CBDC use on a four-point scale from “not so important” to “very important” (4=Very important; 3=Important; 2=Somewhat important; 1=Not so important).
- The sample includes 18 AEs and 32 EMDEs.
- Survey results indicate:
  - Facilitation of tax avoidance and loss of oversight by domestic authorities due to use of foreign CBDC emerged as a key concern.
  - Undesirable volatility in FX rates was rated an important concern.
  - Use of the CBDC of your jurisdiction abroad was also a concern.
  - Outside predefined choices, central banks highlighted risks such as ease of settlement, AML/CFT, cyber risk, emergence of a foreign CBDC or a global stablecoin as a dominant vehicle in the domestic market, illicit finance, consumer protection (data privacy), operational risks, and redundancy of payment systems.
- Graph 7 (source: R Auer et al, “CBDCs beyond borders: results from a survey of central banks”) displays relative scores for these risks.

_Italic: ppea2021048 - 3. Opportunities and risks associated with cross-border use of CBDCs_

### 4. Conclusion and considerations for further work

### 4. Conclusion and considerations for further work

### Key findings and overall implications
- Many central banks are currently investigating risks, benefits and various designs of CBDCs, but with a strong focus on domestic needs.
- Only a few central banks have made firm design choices so far.
- Implications of CBDCs, even if only intended for domestic use, will go beyond borders, making it crucial to coordinate work and find common ground.
- If coordinated successfully, the clean slate presented by CBDCs might – in time and in combination with other improvements – be leveraged to enhance cross-border payments.
- CBDC arrangements facilitating cross-border payments imply different degrees of international integration and cooperation, ranging from basic compatibility with common standards to the establishment of international payment infrastructures.
- The analysis highlights both the need for multilateral collaboration and the importance of interoperability between CBDCs.

### Practical progress and compatibility with other efforts
- This report has shown how CBDC could facilitate enhanced cross-border payments conceptually, and how efforts in practice are taking these considerations forward.
- Enhancements in other building blocks of the cross-border payments programme will be critical for cross-border CBDC use, including:
  - aligning regulatory, supervisory and oversight frameworks for cross-border payments;
  - AML/CFT consistency;
  - PvP adoption;
  - payment system access.
- The idea of encouraging interoperability between CBDCs has strong structural similarities to:
  - establishing links between the payment infrastructures of different countries;
  - investigating the feasibility of new multilateral cross-border payment platforms.
- The eventual international adoption of CBDCs is likely to proceed at different speeds in different jurisdictions, calling for interoperability with legacy payment arrangements.

### Areas requiring further exploration and analysis
- Further exploration on CBDC design choices and their macro-financial implications is essential to achieve potential public welfare benefits while preserving financial stability.
- Important and complex questions still to be further analysed include:
  - interoperability between existing and new infrastructures;
  - access to and control of central bank money;
  - distinction between wholesale and retail CBDC;
  - the role of private industry actors;
  - interoperability with non-CBDC payment arrangements (noting different adoption speeds across jurisdictions).
- This report constitutes the response to action 1 of building block 19.

### Subsequent actions and timelines (from the report)
- Starting in August 2021, with completion in July 2022, action 2 will cover the development of options for access to and interlinking CBDCs that could improve cross-border payments.
- This study will be complemented with an assessment (action 3) of:
  - the practical and technological complexities of implementing different CBDC arrangement designs and interoperability types; and
  - trials and experiments of arrangements that facilitate efficient cross-currency CBDC payments.
- These topics are related to building blocks 4, 5, 9 and 10, and are connected to CPMI (2020a, b) and FSB (2020c) analyses (building blocks 13 and 17).

*IMF — 4. Conclusion and considerations for further work (pp. 20–23 of the source PDF)*

### Annex 1: Projects for cross-border CBDC arrangements

### Annex 1: Projects for cross-border CBDC arrangements

### Model 2 (interlinked systems) — Project Jasper-Ubin
- Context
  - In 2016, BOC and MAS embarked on Project Jasper and Project Ubin, respectively, to explore the use of DLT for the clearing and settlement of payments and securities. BOC and MAS subsequently collaborated to demonstrate the interoperability of their respective experimental networks, and investigate the potential benefits of greater efficiencies and reducing risks.
  - MAS and the BOC linked up their respective experimental wholesale CBDC networks, Jasper (owned by BOC) and Ubin (owned by MAS), to enable atomic transactions for Canadian dollar – Singapore dollar payments across the two systems using Hash Time-Locked Contracts (HTLC).35
- Operating model
  - The Jasper network (in Canada) sat on Corda and the Ubin network (in Singapore) sat on Quorum.
- Key considerations
  - Demonstrated cross-platform interoperability given the realistic assumption that DLT-based RTGS systems in each country sit on different platforms.
  - In 2020, Project Ubin expanded on this work to explore how multiple digital currencies could be issued and transacted on a single common platform (ie Model 3).36
  - With the conclusion of the experimental phases of Project Ubin in July 2020, industry players are building on the results of the project to move towards the commercial development of a DLT-based multi-currency payments network aimed at enhancing commercial cross-border clearing and settlements globally. One example is Partior, a joint venture by DBS Bank, JP Morgan and Temasek. Unlike Project Ubin, Partior will be based on digitised commercial bank money rather than CBDCs.
- Footnote summary (preserved text)
  - 35: HTLC uses smart contracts to synchronise all the actions making up a transaction across two or more systems, such that either they all happen, or none happens. Their basic constructs involve locking or encumbering the asset to be transferred, secret disclosure to the counterparty to complete the acceptance process, and a timeout mechanism to release the encumbrance should the counterparty fail in its acceptance process.
  - 36: MAS and its industry partners developed a production grade blockchain-based multi-currency settlement network, which enabled issuance or distribution of digital currencies (both wholesale CBDC and commercial bank money) in various currencies and which included interfaces for other blockchain networks to connect and integrate seamlessly. This network featured expanded use of smart contracts to more efficiently serve commercial use cases such as DvP with private exchanges, conditional payments and escrow for trade, and payment commitments for trade finance.

### Model 2 (interlinked systems) — Project Jura
- Context
  - Project Jura is conducted by the Bank of France, the Swiss National Bank and the BIS Innovation Hub, together with a private sector consortium, and explores cross-border settlement with two wholesale CBDCs and a digital security on a DLT platform.
- Operating model
  - Involves the exchange of a French digital security and euro wholesale CBDC through a delivery versus payment (DvP) settlement mechanism and the exchange of euro wholesale CBDC against Swiss franc wholesale CBDC through a payment versus payment (PvP) settlement mechanism.

### Model 3 (single system, multiple CBDCs) — Inthanon-LionRock
- Context
  - Project Inthanon-LionRock is a joint initiative by the Bank of Thailand (BOT) and the Hong Kong Monetary Authority (HKMA).
  - Following prior CBDC projects with a domestic focus by both central banks, Inthanon-LionRock explored the application of CBDC to cross-border payments.
- Operating model
  - Cross-border payments are processed through a “corridor network” which links up two separate domestic wholesale CBDC networks and provides cross-border settlement services.
  - On either side of this corridor, each central bank issues its own wholesale CBDC on their domestic settlement networks which are separated from cross-border transactions.
  - The corridor is operated by a joint BOT-HKMA body.
- Key considerations
  - Settlement mechanism: Settlement of cross-border transactions takes place with the help of depositary receipts. For the settlement of the cross-border transactions, each central bank facilitates the conversion of their wholesale CBDC into a special vehicle called depository receipt (DR) denominated in domestic currency and vice versa.37 The DR is then used for transferring value amongst all participants in the corridor network.
  - FX: The model involves a choice of three options for FX conversion: (1) seeking the best FX bid-offer rate from other participants in the corridor network; (2) selecting specific counterparties within the corridor network; or (3) FX dealing outside the corridor network between participating banks and non-participating (off-corridor) banks. All options settle in an atomic PvP fashion, and smart contracts are developed to track the settlement process of the trade.
- Footnote summary (preserved text)
  - 37: A depositary receipt (DR) is a negotiable certificate issued by a bank representing shares in a foreign company traded on a local stock exchange. This is how links between CSDs are established currently allowing securities listed in an exchange in one jurisdiction to be traded in another jurisdiction – for example American Depository Receipts of Glaxo SmithKline listed in the London Stock Exchange or ADR of HDFC Bank listed in Bombay Stock Exchange (India).

### Model 3 (single system, multiple CBDCs) — Project mCBDC Bridge
- Context
  - The mCBDC Bridge project is run by the BIS Innovation Hub in collaboration with the HKMA, BOT, Digital Currency Institute of the People’s Bank of China and the Central Bank of the United Arab Emirates.38
  - The initiative builds on the experience of the Inthanon-LionRock project. It will study the potential of distributed ledger technology (DLT) to enhance the financial infrastructure for cross-border payments.
- Operating model
  - The mCBDC Bridge is a multi-currency CBDC platform that adopts DLT to facilitate real-time cross-border funds transfers and pursues the path of atomic payment-versus-payment for FX transactions. The project includes exploration of scalability, interoperability, privacy and governance.
- Key considerations
  - Aims to enhance the cross-border corridor network prototype to support CBDCs of multiple jurisdictions.
  - Will further explore business use cases in cross-border trade settlement and capital market transactions.
  - It is anticipated that more banks and large corporates will join the trials with real trade transactions.
- Footnote summary (preserved text)
  - 38: The mCBDC Bridge is an initiative run by the BIS Innovation Hub in collaboration with the HKMA, BOT, Digital Currency Institute of the People’s Bank of China and Central Bank of the United Arab Emirates.

### Model 3 (single system, multiple CBDCs) — Project Dunbar
- Context
  - Project Dunbar is an initiative by the BIS Innovation Hub Singapore Centre in collaboration with MAS and plans to work with central banks, financial institutions and technology partners.
  - Project Dunbar will develop new connectivity models and a prototype of multi-currency DLT-based settlement platform.
- Operating model
  - The platform will include the native issuance of multiple wholesale CBDC, while being interoperable with other DLT platforms and traditional payment rails.
  - This will allow the platform to accommodate wholesale CBDC from central banks that issue on their own platform, and from central banks that wish to issue wholesale CBDC but do not have their own platform.
- Key considerations
  - Explores enhancements to a multi-CBDC platform through:
    - (i) the use of smart contracts to automate FX exchange based on discovery of and matching with the best available rates, and to manage liquidity and FX risks,39 and
    - (ii) exploring how different multi-currency settlement platforms could be designed to link up with one another. This includes a study of governance models, such that central banks have control over access to and use of their issued CBDCs in a multilateral setting.40
- Footnote summary (preserved text)
  - 39: This includes on-chain liquidity providers, automated market making through liquidity pools managed by smart contracts, use of intermediate settlement assets for illiquid currency pairs, and optimisation of algorithms for price matching, including through different intermediate currencies or alternative settlement assets.
  - 40: Detailed in article “Multi-CBDCs: Designing a digital currency stack for governability”, accessible at https://opennodes.com/2021-04-22-02-40-28-multi-cbdcs-designing-a-digital-currency-stack-for-governability.

### Model 3 (single system, multiple CBDCs) — Project Aber
- Context
  - Led by the Saudi Central Bank41 and the Central Bank of the United Arab Emirates. Commercial banks (three Saudi and three UAE) were selected to participate in the development of the currency.
  - The initiative uses DLT and a new, dual-issued digital currency as a unit of settlement between commercial banks in the two countries and domestically.
- Operating model
  - The model adopted a new CBDC issued by both central banks as a unit of settlement between commercial banks in the two countries and domestically.
  - The Aber model is based on a permissioned DLT that enables a high level of decentralisation and enables commercial banks to settle with each other even in cases where the central bank is unavailable or disconnected from the network.
- Key considerations
  - Aber uses three types of ledgers for transferring funds:
    - (i) primary ledger, where all the banks (commercial as well as central) participate in this ledger, and the CBDC is issued by central banks through a special “issue” transaction on the primary ledger;
    - (ii) bilateral ledgers, where the peer-to-peer transactions between each pair of commercial banks are stored; and
    - (iii) a private ledger between a commercial bank and its central bank.
- Footnote summary (preserved text)
  - 41: Formerly Saudi Arabian Monetary Authority (SAMA).

*Annex 1: Projects for cross-border CBDC arrangements — IMF publication content unit ppea2021048*

### Annex 4: Composition of the Future of Payments Working Group (FoP)

### Annex 4: Composition of the Future of Payments Working Group (FoP)

### Chair
- Sveriges Riksbank: Cecilia Skingsley

### Members
- Central Bank of Argentina: Luis d’Orio
- Reserve Bank of Australia: Chris Thompson
  - Cameron Dark (alternate)
- National Bank of Belgium: Filip Caron
- Central Bank of Brazil: Lucio Oliveira
  - Emerson Schmitz (alternate)
- Bank of Canada: Alejandro Garcia
  - Scott Hendry (alternate)
  - Francisco Rivadeneyra (alternate)
- The People's Bank of China: Changchun Mu
  - Lyu Yuan (alternate)
- European Central Bank: Andrea Pinna
  - Arnaud Mehl (alternate)
- Bank of France: Valérie Fasquelle**
  - Thomas Argente* (alternate)
  - Anne-Catherine Bohnert* (alternate)
  - Adeline Bachellerie* (alternate)
- Deutsche Bundesbank: David Ballaschk
  - Inga Schultze (alternate)
- Hong Kong Monetary Authority: Nelson Chow
  - Yvonne Tsui (alternate)
  - Jessica Szeto (alternate)
- Reserve Bank of India: Anuj Ranjan
  - Brijesh Baisakhiyar (alternate)
- Bank of Italy: Giuseppe Bruni
  - Michela Tocci (alternate)
  - Ferdinando Del Vecchio (alternate)
- Bank of Japan: Masami Inoue
  - Masaki Bessho (alternate)
- Bank of Korea: Lee Hyung Koo
  - Boram Kim (alternate)
- Netherlands Bank: Peter Wierts
  - Marc van der Maarel (alternate)
- Central Bank of the Russian Federation: Anastasia Yanovskaya
  - Denis Baryshkov (alternate)
- Saudi Central Bank: Mohannad Alshehri
  - Khalid Alotaibi (alternate)
- Monetary Authority of Singapore: Tze Hon Lau
  - Chan Shu Ying (alternate)
- South African Reserve Bank: Annah Masoga
  - Pearl Malumane (alternate)
- Bank of Spain: José Manuel Marqués
- Sveriges Riksbank: Martin W Johansson
  - André Reslow* (alternate)
  - Hanna Armelius* (alternate)
- Swiss National Bank: Benjamin Müller
  - Raphael Reinke (alternate)
- Central Bank of the Republic of Turkey: Büşra Ercan
  - Baran Aytaş (alternate)
- Bank of England: Christina Segal-Knowles
  - Emma Butterworth (alternate)
- Board of Governors of the Federal Reserve System: David Mills
  - Jackie Cremos (alternate)
  - Jean Flemming (alternate)
- Federal Reserve Bank of New York: Joey Patel
  - John Rutigliano (alternate)

### Observers
- Bank for International Settlements: Raphael Auer*
- Basel Committee on Banking Supervision: Stefan Hohl
- Financial Stability Board: Alexandre Stervinou
  - Kieran Murphy (alternate)
- Financial Action Task Force: Ken Menz
- International Monetary Fund: Tommaso Mancini Griffoli*
  - Federico Grinberg (alternate)
  - Gabriel Soderberg (alternate)*
- World Bank Group: Harish Natarajan
  - Ahmed Faragallah (alternate)*
- BIS Innovation Hub: Codruta Boar*

### Secretariat
- CPMI Secretariat: Tres Wehrli*
  - Thomas Nilsson*

### Additional contributors and support
- Tony Richards (Reserve Bank of Australia)
- Cleopatra B Davis (Central Bank of Bahamas)
- Sharmyn Powell (Eastern Caribbean Central Bank)
- Ulrich Bindseil (European Central Bank)
- Burkhard Balz (Deutsche Bundesbank)
- P Vasudevan (Reserve Bank of India)
- Kazushige Kamiyama (Bank of Japan)
- Oleg Perestenko (Central Bank of the Russian Federation)
- Jon Cunliffe (Bank of England)
- Manisha Patel (Bank of England)
- Michael Yoganayagam (Bank of England)
- Hampton Finer (Federal Reserve Bank of New York)
- Michael J Lee (Federal Reserve Bank of New York)
- Maria Teresa Chimienti (World Bank)
- Giulio Cornelli (Bank for International Settlements)
- Jon Frost (Bank for International Settlements)
- Thomas Lammer (Committee on Payments and Market Infrastructures)
- Tara Rice (Committee on Payments and Market Infrastructures)

### Drafting team notes
- * Member of the drafting team
- ** Lead of the drafting team

*Annex 4: Composition of the Future of Payments Working Group (FoP), ppea2021048*

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_Source: https://www.imf.org/-/media/files/publications/pp/2021/english/ppea2021048.pdf_