BIS: 'Faster payments with digital central bank money'

With central bank digital money, we can make payments between countries faster. Transactions that currently take several days will only take a few seconds. Bank charges will also be significantly reduced. That Writes the Bank for International Settlements (BIS) in a new report. The BIS, also known as the bank of central banks, is researching the implementation of this new form of digital money.

Today, payments between banks in many countries are extremely fast, in some cases even real-time. That changes when one wants to transfer money to a lesser-known bank in a faraway country on the other side of the world. Before the money arrives at its destination, it has to go through various banking systems. Not only does this take a lot of time, sometimes up to three to five working days, but there are also often high transaction costs involved.

"Making cheaper cross-border payments available, including in those areas that do not benefit from a vibrant banking system, would be positive for trade and economic development," Benedicte Nolens of the central bank's innovation platform explained.

Competition

Large corporations and financial institutions use SWIFT, but that platform is not accessible to consumers and small businesses. Transferring to another country can then be a cumbersome and slow process. Despite all the innovations in the financial sector, this remains a problem that has received little attention until now. There may not be enough urgency on the part of banks to make cross-border payments faster and cheaper.

This situation was the standard for years, but with the rise of cryptocurrencies, there has suddenly been more competition. With virtual currencies like Bitcoin, it is possible to make international payments without long waiting times. And that makes central banks nervous. For the Government of El Salvador This was one of the reasons to switch to Bitcoin as a means of payment. Not only is this faster, but it is also cheaper than the traditional banking system.

Central bank digital money

Central banks are trying to use central bank digital money (CBDC) to build an alternative to cryptocurrencies. This is a bold step, because it means that they are entering the field of commercial banks. Still, central banks, including the BIS, want to bring their new form of digital money to market quickly.

The BIS, in collaboration with the central banks of Hong Kong and Thailand, is now experimenting with a new kind of digital currency based on blockchain technology. As a result, transactions between countries must also be real-time can be processed. China and the United Arab Emirates have also joined this project. If the tests are successful, the central banks want to prepare the currency for implementation.

Risks

Earlier, we wrote about the risks and dangers of central bank digital money. It gives central banks Even more control about our daily payment transactions and can also be used to guide our behaviour. Think, for example, of more Financial repression through the introduction of negative interest rates. Last summer, the Bank of England suggested that central bank digital money could be the same Programmed it may only allow people to make specific purchases. That would be a major threat to our freedom.

This contribution comes from Geotrendlines