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There are currently several countries developing state digital currencies for cross-border settlements. And chances are, they will arrive even before the typical “in-country” CDBCs.

While market turbulence is throwing prices of cryptocurrencies and DeFi assets up and down, central banks of different countries move forward with creating their own central bank digital currencies (CDBCs) with a bulldozer-like determination. However, the process has its own tendencies and even what you could call “trends”.

One such “trend” gaining momentum before our very eyes is the development of cross-border central bank digital currencies. In the latest news, central and reserve banks of Australia, Malaysia, Singapore, and South Africa have been creating platform prototypes for cross-border CBDC as part of the new “Project Dunbar” by the Bank of International Accounts (BIS).

The bank statement claims that platforms working immediately with several CBDCs will allow financial institutions to directly conduct transactions using the digital currencies of participating central banks. The move is supposed to eliminate the need for intermediaries and reduce transaction time and cost.

The question right away is: “Who are you calling intermediaries?” The market of interstate payments using blockchain technology for the past five years has been successfully developed by Ripple. And if the company’s current conflict with the SEC is resolved favorably, Ripple will have very few business competitors and no lack of market confidence. Nevertheless, the central banks of different countries apparently still want to deal with each other directly.

Project Dunbar is currently expected to head the BIS Innovation Hub in Singapore. Its task is to make international payments as fast as possible while maintaining the same level of reliability and security. In recent years, it has become the main priority of BIS, which is clearly looking to replace such morally depreciated payment systems as SWIFT.

Project Dunbar is aligning with the G20 roadmap to improve cross-border payments for the development of global and regional initiatives. The first challenge for the BIS Center in Singapore is to create prototypes for shared platforms to carry out cross-border transactions with multiple CBDCs. “Prototypes” are plural here because the terms of reference call for the use of several different distributed ledger technology platforms. Along the way, various governance and operational models will have to be formed to let central banks share CBDC infrastructures across jurisdictions and business regions. The aforementioned technical prototypes will be exhibited at the Singapore FinTech Festival in November 2021.

«Project Dunbar brings together central banks with years of experience and unique perspectives in CBDC projects and ecosystem partners at advanced stages of technical development on digital currencies., – says the head of the BIS Innovation Center in Singapore Andrew McCormack. – With this group of capable and passionate partners, we are confident that our work on multi-CBDCs for international settlements will break new ground in this next stage of CBDC experimentation and lay the foundation for global payments connectivity.»

It is still difficult to say which other central banks may join the project. There has been preliminary interest demonstrated by at least 20 countries around the world so far.

«A shared platform with multiple CBDCs explored by Project Dunbar can bypass outdated payment mechanisms and serve as a basis for a more efficient international settlement platform, – thinks Fraziali Ismail, Assistant Governor in Bank Negara Malaysia. – We hope that the project will stimulate a broader public-private partnership to ensure fast and seamless cross-border payments, combining the advantages of blockchain technology and the efficiency of traditional banking.»

Here it is worth mentioning the joint project of the Central Bank of the United Arab Emirates (CBUAE) and the Saudi Arabia Monetary Agency (SAMA, the body acting as the kingdom’s central bank) to create a national digital currency based on blockchain technology. The project named Aber was aimed to simplify interbank transactions between the two countries.

The very name Aber is the Arabic word for “border crossing”. It was chosen to reflect the cross-border nature of the project, as well as the hope that the new CBDC would go beyond established borders in the realm of technology. Aber was supposed to become the basis of a new backup internal financial settlement system.

In the end, the Aber project gradually turned into a chamber settlement system between the two central banks. However, it has left an instrumental legacy, particularly regarding technology capable of “reconciling” such conflicting requirements as security and scalability.

One last thing to consider is the ominous shadow of China hanging above all the cross-border CBDC projects described (and omitted) in this article. The country has already issued its central bank digital currency – the digital yuan, also called DCEP.

If the first task of the digital yuan is to become the perfect means of Beijing’s control over Chinese citizens, the second is to pressure the US dollar on the global settlement arena. A report by China’s Zero One Think Tank says the digitization of the yuan will help the Chinese national currency become a global means of payment. The country’s government is well aware that the money must be actively used in cross-border trade and grow its share in central bank reserves to reach that status. In particular, it concerns transactions in large-scale foreign economic projects. The prime example is, of course, the Belt and Road initiative, which unites China’s many neighbors.

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