CBDCs can enable smooth cross-border payments: Tel Aviv FinTech Week

At Tel Aviv FinTech Week 2023, Yoav Soffer, the adviser to the deputy governor of the Bank of Israel, touched on the topic of central bank digital currencies (CBDCs) as an efficient cross-border payment option.

The lecture comes after the Bank for International Settlements (BIS) concluded its research into international retail and remittance payments via CBDCs between the central banks of Israel, Norway and Sweden. The BIS project is called “Project Icebreaker.”

Soffer, who is also project manager of the CBDC program for Israel’s central bank, said that while domestic payments in Israel have become “very easy, convenient and cheap,” the same is not true for payments outside the country.

“Cross-border payments are often perceived to face challenges of high costs, low speed, limited access and insufficient transparency according to the Financial Stability Board.”

Soffer touched on the results of an example transaction that took less than two minutes. Moreover, he emphasized that this model will significantly reduce the cost of sending funds internationally and is “much more competitive in terms of the currency transaction.”

He went on to say that the technological requirements for countries to join the model are very limited, and once a prototype is built, onboarding should essentially be a domino effect.

“Once you’ve built it for three countries, you can build it for 180 countries. Therefore, it is also very scalable.”

However, he said that in using such a program, ways of providing liquidity to CBDC providers must be considered, as well as the integration of policies. Soffer said privacy is another important consideration the BIS team was aware of during the project.

Related: SWIFT moves to next phase of CBDC testing following positive results

Despite over a hundred countries looking at the possibilities of CBDCs, sentiment around these centralized digital currencies is mixed. They have useful features, such as efficient cross-border transactions, although some say they could threaten the future of consumers.

Former CFTC Chairman Christopher Giancarlo recently stressed that CBDCs should protect privacy and not be a surveillance tool as many fear. A congressman in the United States, Tom Emmer, also commented that they could “light weapons” to spy on American citizens.