The Bank for International Settlements (BIS) has released a report summarizing the “Project Icebreaker” trial, which explored the potential advantages and difficulties of utilizing a retail central bank digital currency (CBDC) in cross-border payments. The experiment was designed to test “the technical feasibility of conducting cross-border – cross-currency transactions between different [distrubuted ledger technology]-based CBDC proof of concepts.”
Technical Feasibility of Cross-Border Retail CBDC Payments Reportedly Proven in Project Icebreaker Trial
Central bank digital currencies (CBDCs) have been a key focus for the Bank for International Settlements (BIS) in recent times. BIS recently published a report asserting that most crypto asset investors lost money over the past seven years. The report highlighted BIS insisting there’s an urgent need for regulating the crypto industry and developing a CBDC.
Following the report, BIS general manager Agustin Carstens stated that crypto assets have already lost the battle to central bank-issued fiat currencies. Carstens also emphasized the necessity for central banks to take charge of innovation and create a functional CBDC. “If central banks do not innovate, others will step in,” Carstens cautioned.
On March 6, 2023, BIS published a report titled “Project Icebreaker: Breaking New Paths in Cross-Border Retail CBDC Payments.” The BIS study highlights the participation of the BIS Innovation Hub Nordic Center and central banks in Norway, Israel, and Sweden in the project. Project Icebreaker aims to connect domestic CBDC systems using a “hub-and-spoke” model.
Additionally, the BIS report emphasizes the need to address “legal considerations” for the Icebreaker hub-type approach. Cecilia Skingsley, the head of BIS Innovation Hub, explained that Project Icebreaker is “unique in its proposition.”
“It first allows central banks to have almost full autonomy in designing a domestic retail CBDC,” Skingsley said. “Then it provides a model for that same CBDC to be used for international payments.
According to the BIS report, implementing Icebreaker in the real world would “require a range of technology” and would need to enhance both privacy and “AML/CFT compliance and monitoring.” The project employed three technologies in each nation state, including Ethereum Quorum in Israel, Hyperledger Besu in Norway, and the Corda network in Sweden.
A CBDC can be created in a custom fashion, and central banks can still “participate in a formalized interlinking arrangement to enable cross-border payments.” According to the BIS report, the author suggests that central banks should consider integrating conditional settlement and possibly adopting the current messaging and addressing standards used today.
“If Israel is to issue a digital shekel, it would be very important that we do it according to the evolving global standards, so that Israelis could use it also for efficient and accessible cross border payments,” said Andrew Abir, the deputy governor at the Bank of Israel, in a statement. “While there is still much work ahead of us for the Icebreaker model to become a global standard, the learnings from this successful project have been very important for us and for the central banking community,” Abir added.
What are your thoughts on Project Icebreaker, CBDCs, and cross-border retail CBDC payments? Share your views on this topic in the comments section below.
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