The central banks of Australia, Singapore, Malaysia, and South Africa have signed up to test interoperability of central bank digital currencies for cross-border payments.
None of the four nations’ central banks has a working digital currency (CBDC), and won't have for months – if not years.
But all four have commenced work to understand how they might construct and operate a CDBC. They're doing so because of an increasing buzz that central banks should issue digital currency that has all the qualities of other instruments like banknotes but lends itself to electronic exchange. Central banks have also sniffed the wind and seen that private digital currencies are gaining popularity but are often used in ways that make economic planning harder, evade regulation and taxation, or facilitate criminal activity. CDBCs are seen as a way to bring digi-bucks safely into the mainstream.
Central banks have also spotted the emergence of "Decentralised Finance" (DeFi) and admire some aspects of its ability to create more competition for financial services and distribute them to communities that may struggle to access them today.
Sorting out those big issues is something for the future. For now, the four nations have agreed that testing interoperability of CDBCs is worthy of their attention because central banks have a remit to safeguard the economic health of their nations – and faster and cheaper cross-border transactions can boost trade.
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As explained in the joint announcement from the Reserve Bank of Australia, Bank Negara Malaysia, Monetary Authority of Singapore, and South African Reserve Bank, the test is named "Project Dunbar" and has ambitions to demonstrate that digital money can cut costs and reduce transaction times.
The Bank of International Settlements (BIS) also likes faster, cheaper, cross-border payments. Which is why it's facilitating the trial and working on similar tests with Swiss and French Banks.
The G20 group of nations has also signaled it wants to set standards for faster and cheaper cross-border payments, and efforts like Project Dunbar are expected to contribute to the G20's work. Adding urgency to the need for CBDCs is China moving quickly to develop and deploy a Digital Yuan – an innovation that has sparked a response from at least seven major economies
Blockchains will almost certainly lurk in the back-ends of whatever the four participating nations devise, but the paper the BIS says is informing Project Dunbar doesn't mention the technology. It's also cool on the potential of "stablecoins" – like Facebook's Libra – to facilitate better cross-border payments. ®