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The Bank for International Settlements (BIS) has completed a study with three national central banks to evaluate the use of retail central bank digital currencies (CBDCs) in making cross-border payments.
Working alongside the Bank of Israel, Norges Bank and Sveriges Riksbank, Project Icebreaker analysed the technical feasibility for making international and cross-currency payments between retail CBDC systems, based on a hub-and-spoke model.
The transaction is made as two domestic payments, assisted by a foreign exchange provider with a presence in each of these markets, thereby enabling payer and payee to transact without the retail CBDC ever needing to leave its own system. To enable this, the FX provider has rCBDC wallets in each of the respective payment systems, buying currency in one system and selling in the other.
Settlement takes place via an atomic PvP mechanisms using hash-time locked contracts (HTLC), providing the equivalent to a digital escrow transaction.
The Project Icebreaker prototype enables the system to access quotes from a range of preferred foreign exchange providers to process the transaction. Multiple forex providers can submit quotes to the hub, with the hub automatically selecting the cheapest quote available.
The BIS indicates that the project specifies only a minimum set of technical requirements, enabling the system to connect domestic systems running on different underlying technologies.
For example, the proof of concept (PoC) required the hub to link to the rCBDC systems in Israel, which is running on Quorum-based Ethereum, Norway, which runs on Hyperledger Besu, and Sweden, which runs on R3 Corda.
The Icebreaker hub offers a standard set of APIs, providing simple and streamlined connectivity for participating domestic rCBDC systems. The participants conclude that Project Icebreaker’s hub-and-spoke model enables central banks to retain almost full autonomy when designing their domestic rCBDC systems, while providing streamlined connectivity to the hub to enable cross-border payments.
Commenting on the project, head of BIS Innovation Hub Cecilia Skingsley, says: “Project Icebreaker is unique in its proposition. It first allows central banks to have almost full autonomy in designing a domestic retail CBDC. Then it provides a model for that same CBDC to be used for international payments.”
To date, the BIS Innovation Hub has run a number of cross-border CBDC projects to evaluate different approaches to improving cross-border payments. Project Jura, Project Dunbar, and mBridge experimented with the issuance of wholesale CBDCs on multilateral platforms.
The BIS explains that Project Icebreaker hub-and-spoke methodology has some commonality with Project Nexus, which links domestic instant payment systems, but it differs in its settlement method, its ability to offer a choice of FX providers, its use of bridge currencies and the technologies used in each domestic system.
