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Cryptocurrency • Finance

The Impact of CBDCs on Cross-Border Payments and Remittances

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Cross-border payments are a vital function of the global financial system. The Bank of England estimates that their global value will grow to US$250 trillion by 2027 – a rise of $100 trillion since 2017. 

Despite their importance, however, they have been beset by high costs, slow processing, security threats, and poor transparency. Though they create more complexity, some argue that cross-border payments suffer from a disproportionate lack of efficiency when compared to domestic payments. 

It’s fitting then, that Central Bank Digital Currencies (CBDCs) are emerging with the specific purpose of enhancing the efficiency of cross-border transactions for participating central banks.

CBDCs are a digital form of fiat currency that is issued and guaranteed by central banks. They differ from other forms of digital asset because they are issued, controlled and regulated by a central bank. CBDC uses the same blockchain technology as crypto, but it is centralized, and not based on publicly accessible  ledgers.  

The potential of CBDC to improve cross-border payments and remittances is such that 130 countries are now exploring its adoption, according to The Atlantic Think Tank. 

This article will explore the challenges of international payments, the case of CBDC adoption, and the benefits it could bring. But first, let’s unpack cross-border payments. 

Why do cross-border payments matter?

As transactions between parties in separate countries, cross-border payments can be made in various ways –  bank account transfers, credit cards, digital wallets, and mobile phone payments. They encompass retail and wholesale uses, and international remittances. 

Wholesale payments are usually between financial institutions. They can support the activities of customers, or institutional cross-border needs like foreign exchange, the trading of equity derivatives, securities, and commodities, and lending and borrowing. 

Governments and large companies also use wholesale payments for import and export services that support financial market trading. 

Cross-border retail payments between individuals and businesses include remittances – money that foreign workers and migrants send back home. 

Growth of cross-border payment

With the international mobility of people, goods and services and capital, cross-border payments have grown in global importance.

A growing number of people are sending money internationally. Freelance workers, immigrants, and businesses are all playing a part in today’s vibrant global economy, and they all send or receive money in various currencies. Cross-border payments and remittances are distinct on various technical grounds related to their purpose, exchange rate, regulation, operation, and application. 

A solution, therefore, that facilitates faster, cheaper, secure, less complicated and more inclusive cross-border payments, is the ultimate goal. Enter CBDC. 

Will CBDCs help ease cross-border payments?

With a secure and immutable record of transactions, CBDCs improve transparency and traceability in cross-border transactions. CBDCs also simplify the process of remittances, benefiting both senders and recipients.

For governments around the world, CBDC is an attractive option with its promise of interconnecting digital payment systems. By creating a more seamless cross-border payments system, CBDC would address a number of strategic objectives:

  • Improve the speed, ease, and security of payments. 
  • Lower the costs, dangers, and environmental impacts of physical cash. 
  • Promote greater financial inclusion for the poor, marginalized, and unbanked. 
  • Enhance powers to fight global financial crime – money laundering, cybercrime, fraud, tax avoidance, and terrorist financing. 
  • Create regulatory harmony in monetary and financial markets
  • Promote financial stability and empower economic growth. 
  • Counter the destabilizing threat of unregulated cryptocurrencies and other digital assets. 

The use of physical cash is in sharp decline, particularly in developed nations. The Pew Research Center found that 41% of US adults do not use cash for typical weekly purchases, a 12% increase from 2018. Another development that the authorities are keen to counter is the growing use of mobile wallets for cross-border remittances. 

Using digital wallets integrated with mobile financial apps, users can bypass conventional remittance channels. Issues of financial transparency, and the aforementioned threat of financial crime are foremost in the collective mind of the authorities. 

Cross-border cryptocurrencies

Another factor for the authorities is fending off the financial power of cryptocurrencies and the pervasive influence of Big Tech. There are almost 23,000 cryptocurrencies with a total market value of US$1.1 trillion, according to CoinMarketCap. Crypto is used in peer-to-peer transactions that currently represent an unregulated, alternative financial system. 

A report by PYMNTS and Algorand found that crypto is now used in cross-border payments by 37% of firms surveyed. Another 13% said they would use it for that purpose. 


The reasons include that cryptocurrency transactions are faster, completed in minutes, rather than traditional time consuming methods that take hours or even days. The security against error or fraud offered by the transparency of blockchain transactions is also a big draw. 

The report also found that ‘clear’ advantages saw crypto remittances grow in Latin American countries to $400 million per month in 2021. This, it explained, was fueled by the desire to avoid high transaction fees, but also the benefits of predictability and speed. 

This is an interesting development that strengthens the case for the cross-border use of Central Bank Digital Currencies. 

Cross-border pain points

There are a number of challenges that would have to be overcome for CBDC to compete with existing methods and gain wide-scale adoption. The impact of digital currencies on cross-border payments and remittances will depend on factors like;

  • Interoperability of regulatory frameworks.
  • Robustness of privacy and security infrastructures.
  • New cybersecurity risks and financial crime threats. 
  • Monetary policy and operational impacts. 
  • Concerns over openness and competition. 
  • Flexibility and adaptability of new CBDC financial systems. 

The issue is how well CBDC would connect across global markets for wholesale and cross-border transactions. A number of pilot schemes are experimenting with wholesale CBDC for international payments; they typically need input from the private sector and other stakeholders.

It’s fair to say that central banks are known for innovation. The U.S’S Digital Dollar Project for cross-border remittances relied on collaboration with Western Union, Accenture, and BDO Unibank. 

It’s clear from the rates of international development that wholesale CBDC for cross-border purposes is easier for governments to test and scrutinize. Retail CBDC is more controversial.

Privacy issues, technical challenges, political concerns, and interoperability with commercial systems, are the stalling progress of retail CBDCs. It is being made on the wholesale version, however.  

A global snapshot of cross-border adoption

In the U.S., central banks in Boston and New York have finished Project Hamilton for CBDCc wholesale and cross-border use. In the face of technical and political barriers, President Biden is determined that progress be made. 

China is ahead of other nations, its state bank claiming success in  CBDC transactions worth $250 billion to date. A recent summit highlighted challenges with retail settlements, and bulk payments using the digital yuan. 

Japan’s digital yen plans saw tech company Soramitsu test a cross-border system using CBDCs and stablecoins to improve cross-border capabilities between Japan,  India, China, and SouthEast Asia. 

The Eurozone is yet to enter pilot and is still exploring the implications of CBDC. A recent statement underlined that “interoperability with other CBDCs, especially within the EU, is an important feature of the digital euro, including for cross-currency transactions.’’ Keen to protect financial sovereignty, the risks associated with the use of a digital euro outside the euro area must be ‘’mitigated and monitored.”

The Reserve Bank of India is now exploring cross-border projects, notably with The United Arab Emirates to develop an interoperability framework. 

What is the Purpose of CBDCs

In the UK, the Bank of England partnered with the Massachusetts Institute of Technology to explore technical challenges in the design of a CBDC system. 

Russia began its pilot of the digital ruble at the outset of its war on Ukraine. Efforts to develop cross-border, wholesale CBDC are motivated by evading sanctions and lessening dependence on the U.S. Dollar. With international sanctions in place, these efforts could help it circumvent financial restrictions.  

Canada had no immediate plans to introduce CBDC, questioning the need for a digital currency when digital payment rates and credit card ownership are high. 

Australia’s Project Dunbar, tested cross-border CBDC for international settlements with reserve banks in Malaysia, Singapore, and South Africa. Wholesale CBDC will also be tested for foreign exchange settlements, corporate bonds, and pensions. 

Cross-border collaboration

A number of cross-border collaborations are exploring CBDC.  Notable examples include; 

mBridge – this project aims to create a multiple CBDC arrangement for faster, cheaper mechanics for transfer and fourth exchange operations. Countries involved: Thailand, China, Hong Kong, and UAE. 

Project Icebreaker – This project explores a model for permitting retail CBDC payments across borders. Countries involved: Israel, Norway, and Sweden. 

Project Aber – concluded that decentralized ledger technology can successfully facilitate cross-border transactions. Countries involved: Saudi Arabia and the UAE

Project Cedar/Urbin – A joint experiment explored cross-border and multi-currency transactions. Countries involved: U.S. and Singapore. 

Taking the global picture, we can see that many nations are heavily invested in the potential of CBDC for cross-border payments. But is that investment justified? Will the challenges outweigh the benefits, and can global regulation catch up?

Impact on global financial stability

The potential impacts of wholesale CBDC are broadly similar to those of the retail version. On one hand it re-established the influence of central banks on fiscal and monetary policy. It helps them counter the progress of crypto, and improve transparency to fight financial crime.

It promotes greater financial inclusion and allows for tighter regulation.  That said, any appraisal of the impact of CBDC should include its scope for improving global financial stability and wealth creation. That’s where opinions tend to differ. 

Developed countries, as the pilots indicate, are far more disposed to take advantage of central bank digital currencies. They have the infrastructural capabilities, the money to invest, and the collaboration of the private sector, as well as other advanced nations to bank on.  

Emerging markets, on the other hand, may not regard CBDC adoption as a priority. With the infrastructure for basic necessities lacking in many, it is hard to imagine that a system of digital money would gain much traction.

The powers to control and regulate it, and the relative weakness of currencies, would not be enhanced by political, economic, or social instability. So in a sense, one of the most claimed benefits of CBDC, to address financial inclusion, would be undermined on a global scale. In fact, there’s an argument for saying it would increase global wealth inequality. 

And even in advanced economies, the benefits of transparency appear, for many, to be counter to the basic right of privacy, and the long-held freedoms associated with paper and metal money. 


As wide-scale adoption becomes a reality, questions remain over how the technical requirements would be met by any final CBDC design. At a time when artificial intelligence, data analytics, cloud, and a host of other innovations are in use, should we not rely on the private sector to lead the way? The centralized nature of CBCD also gives rise to fears of exploitation by hackers and cyber criminals, who could, no doubt, develop new criminal techniques. 

For many of these issues, we simply don’t know what the outcome will be, as key decisions are yet to be made. What is certain is that cross-border transactions with CBDC will need cooperation on a vast international scale. At present, there’s lots of variation in the approach to digital assets across different jurisdictions. 

The ultimate benefit of financial stability could be surrendered by issues of capital flight, exchange rate volatility, or risks that weaker economies could be vulnerable to the power of dominant digital currencies like the dollar and euro. 

In a sense, everything is still on the table. 

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