Tag: cross-border payments

CBDCs are designed to be very stable: IMF

Banking & Finance

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“About 80–100 Central Banks around the world, including in G20 nations, are exploring central bank digital currencies (CBDC) and are in some sort of pilot or testing stages,” said Tobias Adrian, Financial Counsellor and Director – Monetary and Capital Markets Department, IMF at the Global FinTech Fest.

The three-day Fest, which concluded on September 30, was attended by over 26,000 delegates from 121 countries. Policymakers, technocrats, investors, founders, economists, bankers, participated in the Fest. The event was organised by National Payments Council of India (NPCI), Fintech Convergence Councill (FCC), and Payments Council of India (PCI) of Internet and Mobile Association of India (IAMAI).

Differ from bitcoin

“CBDCs are designed to be very stable, stable in value, with a low transaction cost and backed by the Central Bank for added consumer confidence, very different from bitcoins which fluctuate in value and are more like an investment asset,” Tobias Adrian said.

Also see: The time for central bank digital currencies has come

There could be a lot of innovations in Central Bank issued digital currencies, especially across payments and lending platforms.

“CBDCs could indeed be somewhat similar, not necessarily the same, to bitcoin assets, could be based on blockchain technology, could be available in wallets. It depends on whether the design is based on existing payment systems or using very powerful blockchain technologies,” he added.

Drawbacks

Meanwhile, he warned that cybersecurity could be a major challenge for CBDCs. “You need to make sure that the system is resilient against cyberattacks.” It’s not the technology alone, but the intersection of technology and human.

Also see: Central bank digital currency can boost innovation in cross-border payments: RBI Deputy Governor

Secondly, CBDCs might undermine existing banks so banks need to upgrade their technologies to compete.

Finally, the lack of universal cellphone access may limit CBDC penetration.

On expensive cross-border payments, Adrian envisioned that cross-border transfers would be a lot cheaper for a small amount of payments. There are some wallet exchanges available that allow one to convert US dollar into rupee stable coin, with an implicit fee that is cheaper. However, there are a lot of discussions going on between Central Banks of various countries to make cross-border payments cheaper.

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Central bank digital currency can boost innovation in cross-border payments: RBI Deputy Governor

Banking & Finance

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A central bank digital currency (CBDC) can boost innovation in cross-border payments, making these transactions instantaneous and help overcome key challenges relating to time zone and exchange rate differences, according to Reserve Bank of India (RBI) Deputy Governor, T Rabi Sankar.

A CBDC is the legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different.

Speaking at IAMAI’s Global Fintech Fest 2021, Sankar observed that the frictions relating to time zone and exchange rate differences as also varying legal and regulatory requirements across jurisdictions can be solved through platform-based solutions.

These solutions can make real-time price discovery possible even for retail-sized transactions.

Sankar said settlement of cross-border payments in CBDC can happen without the settlement system of either of the countries or both countries being open.

Costly transactions

A July 2021 BIS report noted that cross-border payments suffer from long transaction delays and can be particularly costly due to the involvement of a high number of intermediaries across different time zones along the correspondent banking process.

The report said CBDCs can be open 24/7, eliminating any mismatch of operating hours. It could settle instantly, reducing the need for status updates

In a speech in July 2021, Sankar said going forward, after studying the impact of CBDC models, launch of general purpose CBDCs will be evaluated.

“The RBI is currently working towards a phased implementation strategy and examining use cases which could be implemented with little or no disruption,” he added.

Some key issues under RBI’s examination include the scope of CBDCs, whether they should be used in retail payments or also in wholesale payments, the underlying technology – whether it should be a distributed ledger or a centralised ledger, for instance, and whether the choice of technology should vary according to use cases, the validation mechanism – whether token based or account based, degree of anonymity etc.

However, conducting pilots in wholesale and retail segments may be a possibility in near future, Sankar said.

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Visa to acquire Currencycloud at 700 million pounds valuation

Banking & Finance

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Visa Inc said on Thursday it had agreed to buy British cross-border payments provider Currencycloud at a valuation of 700 million pounds ($962.01million).

Visa has been a Currencycloud shareholder since 2020, and the financial consideration will be reduced by the equity that the card network company already owns in the start-up, the company said.

Launched in 2012, Currencycloud facilitates cross-border payments for nearly 500 banking and technology companies, including well-known European fintechs Klarna, Monzo, Starling and Revolut. Since its launch, it has moved more than $75 billion in payments to over 180 countries.

The deal comes less than a month after Visa announced it had agreed to a 1.8 billion euro ($2.2 billion) takeover of European open banking platform Tink.

The aggressive acquisition strategy is part of Visa’s push to diversify revenues beyond credit card payments, where it is one of the world’s dominant players. Card companies have been facing increased pressure from regulators on fees, especially in Europe.

“The acquisition of Currencycloud is another example of Visa executing on our network of networks strategy to facilitate global money movement,” Colleen Ostrowski, Visa’s Global Treasurer, said in a statement.

Currencycloud will maintain its management team and continue to operate from its London headquarters. The transaction is subject to regulatory approvals and other customary closing conditions.

Other Currencycloud backers included BNP Paribas SA, SBI Group, Siam Commercial Bank, Sapphire Ventures, Notion Capitaland GV, formerly Google Ventures.($1 = 0.7276 pounds)

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