The allure of central bank digital currencies (CBDCs) as a solution for improving cross-border payments is fading, according to the Future of Payments 2024 survey by the Official Monetary and Financial Institutions Forum (OMFIF).
Interest in CBDC networks has dwindled, with only 13% of respondents considering them the most promising approach, down from 31% last year. Instead, Instant Payment Systems (IPS) are emerging as the preferred alternative.
CBDCs Face Growing Skepticism
One of the primary challenges central banks aim to tackle with CBDCs is the high cost of cross-border transactions. However, central banks appear increasingly divided on the effectiveness of CBDCs as a solution. The survey highlights governance and operational hurdles as persistent concerns, particularly for multi-currency CBDC platforms like Project mBridge.
Launched as a collaborative effort to streamline cross-border payments, mBridge achieved a minimum viable product stage in mid-2024. Yet, liquidity management and governance remain barriers to adoption. Additionally, the platform’s reliance on Chinese-developed technology has raised concerns about centralization and potential misuse for evading sanctions.
The Bank for International Settlements (BIS) distanced itself from the project, with General Manager Agustín Carstens emphasizing that mBridge is not intended to serve the needs of BRICS nations or facilitate sanctions evasion. Still, skepticism remains. “Even the perception that mBridge could aid such ambitions is enough for Western stakeholders to withdraw support,” remarked Josh Lipsky of the Atlantic Council.
Instant Payment Systems Gain Traction
In contrast, IPS models are gaining momentum, supported by 47% of central banks surveyed. The scalability and proven effectiveness of IPS in domestic markets, especially in regions like Southeast Asia, make it an attractive option for cross-border integration. Notably, five Southeast Asian countries recently piloted Project Nexus, showcasing the potential of IPS to interconnect existing systems seamlessly.
While IPS holds promise, challenges remain. The report identifies governance structures and regulatory frameworks as critical factors requiring attention. Despite these hurdles, IPS is being hailed as the more pragmatic and scalable choice for global payments infrastructure.
As enthusiasm for multi-currency CBDCs wanes, the shift toward IPS underscores a growing consensus among central banks. The focus is increasingly on systems that can deliver immediate, cost-effective solutions without the complexities associated with CBDCs.
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