Cross-border payments remain one of the slowest and most expensive areas of the global financial system. International transfers often pass through multiple intermediary banks, creating delays, high transaction costs and limited transparency. Increasingly, central banks are exploring whether digital versions of national currencies could help solve these structural inefficiencies.
Research and pilot programs coordinated by the Bank for International Settlements suggest that central bank digital currencies, commonly referred to as CBDCs, could significantly reshape the way international payments are processed.
What is a CBDC?
A Central Bank Digital Currency (CBDC) is a digital form of a country’s national currency issued and backed directly by the central bank.
Unlike cryptocurrencies such as Bitcoin, which operate independently of government institutions, CBDCs represent official sovereign money in digital form. They are designed to combine the stability of central bank money with the efficiency of digital payment technologies.
CBDCs can generally be divided into two main types:
- Retail CBDCs, which are designed for use by consumers and businesses in everyday payments.
- Wholesale CBDCs, which are primarily intended for financial institutions to settle large-value transactions and interbank transfers.
Many of the most advanced CBDC experiments today focus on wholesale use cases, particularly cross-border settlement between banks.
Why cross-border payments need reform
Traditional cross-border payments rely heavily on correspondent banking networks. In this system, banks hold accounts with one another across multiple jurisdictions to move funds internationally.
While this infrastructure has supported global finance for decades, it introduces several challenges:
- Settlement can take multiple days
- Multiple intermediaries increase transaction costs
- Limited transparency in payment tracking
- Liquidity requirements across different currencies
As digital commerce grows and businesses demand faster international transfers, pressure is increasing to modernise this system.
CBDC pilots are testing new payment infrastructure
Central banks and international institutions are now running a series of pilot projects to explore how CBDCs could streamline cross-border settlements.
One of the most prominent initiatives is Project mBridge, led by the Bank for International Settlements in collaboration with central banks from China, Hong Kong, Thailand and the United Arab Emirates. The project explores a shared digital platform where multiple central banks can issue and exchange digital currencies directly.
Other experiments, including Project Dunbar and Project Jura, have tested multi-CBDC platforms that allow financial institutions to transact directly with each other using central bank-issued digital tokens.
These platforms aim to reduce the number of intermediaries involved in international payments while enabling near-instant settlement between participating banks.
Potential benefits of CBDC-based cross-border payments
If successfully implemented, CBDC infrastructure could significantly improve the efficiency of international transactions.
Digital currency settlement platforms may allow banks to transfer value directly between central banks without relying on long correspondent banking chains. This could reduce settlement times from days to seconds while lowering transaction fees.
CBDCs could also increase transparency in payment flows by enabling real-time tracking of transactions across the network.
Challenges remain before global adoption
Despite the promise of CBDCs, several challenges still need to be addressed before widespread implementation becomes possible.
Central banks must resolve complex issues related to interoperability between different national systems, cybersecurity risks, privacy protections and regulatory coordination across jurisdictions.
There are also concerns about the potential impact on commercial banks if large volumes of deposits were to move directly into central bank digital wallets.
For now, most central banks are proceeding cautiously through pilot programs and limited-scale experiments.
What this means for the industry
- CBDCs could significantly reduce the cost and settlement time of cross-border payments.
- Multi-CBDC platforms may reduce reliance on correspondent banking networks.
- Central banks are increasingly collaborating through global pilot programs to test digital currency infrastructure.
- Banks may need to adapt their international payment systems to integrate with future CBDC networks.
- The next phase of global payments innovation may be driven by central bank-led digital infrastructure rather than private payment networks.
