This week, a report was issued from international agencies, those including the Bank for International Settlements (BIS), the International Monetary Fund and the World Bank, showing that Central Bank Digital Currencies (CBDCs) should be one aspect central banks should focus their efforts on pro-actively to avoid issues of interoperability in the future. This report detailed three options for central banks to affect cross-border interoperability which addresses challenges including significant costs, low speed, limited accessibility and the lack of transparency. This report presents a response to a 2020 report on Payments and Market Infrastructures report that identified 19 building blocks to enhance cross-border payments. 

What are CBDCs? 

Deloitte describes CBDCs as; “A CBDC is an electronic form of central bank money with potential wide use by households and businesses to store value and make payments. It’s central bank digital money in the national unit (e.g., the US dollar) representing legal tender with the liability of the central bank, similar to physical currency in circulation. This makes CBDCs more secure and less volatile than other digital currencies.”

What’s in the works?

Most regulations and work being done on CBDCs has focused on domestic policy rather than looking at the bigger picture, according to the report. Variables considered included accessibility for Payment Service Providers (PSPs) and non-residents to wholesale to retail CBDCs and interaction to non-CBDCs. 

These three approaches of interoperability were observed: 

• Compatibility; The adoption of common standards, making it easier for payment service providers to operate across systems. 

• Interlinking; Allowing participants in the system to establish contractual agreements, tech links, standards and operational components in performing transactions across systems – this is one which can be attained through multiple models. 

• Unified System; A single technical system that would be able to host multiple CBDCs. 

Multinational synergy across all sectors in central bank operation related to CBDC design would be necessary to overcome cross-border payment challenges, and many CBDC design features would remain undecided in all the multiple CBDC projects still in development. Research is moving swiftly, so there is a very good opportunity for coordination to be taken while this issue remains. Coordinating said design features could help CBDCs avoid unforeseen issues and improve standard KYC/AML efforts across the board. 

Conclusion

The world of traditional finance sees this issue, and it’s no stranger within the blockchain and crypto world, interoperability is a common challenge faced by multiple chains within the system – standardisation, and the typical L0 marketing ploy is being pushed across the sphere by all new L1s coming onboard. In actual fact, this issue is also being seen within the traditional world, especially when relating this issue to countries and bureaucratic authorities. One thing is for certain, these approaches need a solid RegTech framework to be utilised, and this will trinkle down to all those solutions and third-party providers that will be working on said technology. That is where Sekuritance can come in. 

Visit www.sekuritance.com today, and find out how we can help you implement a fast and effective onboarding system that gets results.

About Sekuritance

The Sekuritance RegTech platform provides a single platform for every eGRC need, including end-to-end AML/CTF, CECL, FCPA, vendor management, beneficiary onboarding, investor check, card processing MFA checks, blockchain wallet checks, cyber-risk assessments, and other RegTech or Business Process Management requirements.

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