Central Bank Digital Cryptocurrencies Beneficial for Cross-Border Payments

Recent reports have asserted that the introduction of digital currencies which are owned by central banks of countries would ensure that the issue of counterparty credit risk is totally and thoroughly taken care of. This view has been agreed upon by the central banks which belonged to the US, UK, and Singapore. It is important to note that a CBDC is a coin which is created and administered through the central bank of a country and all rules and regulations guiding it would come from the central bank.

A report was recently released from the combined banks which focus mainly on the problems which are associated with cross-border payments and interbank settlements and how these problems can be solved. It is believed that most banks today currently rely on the central banks to do the hard job as relating to cross-border payments and other settlements. This report also asserted that one of the main issues which are being faced by most central banks in solving this problem is the various time lags which exist between cross borders. These lags are believed to be as a result of the various time differences which could occur between various countries.

ONE OF THE MAIN PROBLEMS FACING CENTRAL BANKS WITH RELATION TO CROSS BORDER PAYMENTS IS TIME LAGS

These lags would also in a way affect the fluidity and liquidity of many banks as they would have a lot of funds tied up due to the lag issues which is currently plaguing the international system. Due to the issues, the report suggested many ways in which it can be solved. One of such ways is through the administration of these central bank’s owned coins to members of the public. It is believed that the reports suggest that the first type of coins which is to be released should not be accessible to members of the public. Rather, a retail type of coin should be introduced subsequently which would be accessed by members of the public.

Then, the report finally suggested a third type of coin which would not only be used domestically or internationally but would also be used in both categories with no hindrance whatsoever. It is believed that the introduction of such a coin would allow for the solving of the lagging issue. It remains to be seen whether this suggestion would be implemented.

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