Project Icebreaker proposes a new architecture for cross-border retail CBDCs
News The Bank for International Settlements (BIS) and the central banks of Israel, Norway and Sweden have concluded Project Icebreaker, which studied the potential benefits and challenges of using retail central bank digital currencies (CBDC) in international payments.
A collaboration between the BIS Innovation Hub Nordic Centre, Bank of Israel, Norges Bank, and Sveriges Riksbank, the project tested the technical feasibility of conducting cross-border and cross-currency transactions between different experimental retail CBDC systems.
As detailed in the report also published, Project Icebreaker explores a specific way to interlink domestic systems (a so-called hub-and-spoke solution). In most existing cross-border payment systems, the payer has no choice regarding the exchange rate, as it has no control on who the provider of foreign exchange conversion is. In the Icebreaker model, many foreign exchange providers can submit quotes to the system’s Hub, which automatically selects the cheaper one for the end user.
This competitive set-up also mitigates the risk of insufficient liquidity in the desired currency pair, which can drive fees up [and even delay the transaction].
Other benefits of the model demonstrated in the project are that it reduces settlement and counterparty risk by the use of coordinated payments in central bank money, that transactions are very fast, taking just seconds to complete. Moreover, the model could serve as a platform to introduce innovations in payments that countries are considering within the development of their CBDC systems into cross border CBDC payments.
For central banks contemplating the implementation of retail CBDCs, Project Icebreaker provides deeper understanding of the technologies that can be used and the technical and policy choices available. The project presupposes very minimum technical requirements so as to be able to integrate domestic systems running on different technologies (as was the case with the proofs-of-concept used by the three central banks), thus promoting scalability, interoperability and simplicity.
“Although domestic payments have become less expensive, safer and more efficient, payments across currencies are still associated with high costs, slow speed and risk. When exploring CBDCs it is important to include cross-currency opportunities from the start. Icebreaker is a valuable project that shows how different CBDC solutions in different countries could enable instant cross-currency transactions in a way that would greatly benefit the end users,” said Aino Bunge, Deputy Governor, Sveriges Riksbank.