2023-Public-Sector-Perspectives

Paths to CBDC interoperability As already noted, interoperability is critical if CBDCs are to fulfill their potential. Both wholesale and retail CBDCs can support interoperability. So called multi-CBDC (mCBDC) arrangements involving multiple central banks platforms range “from simply coordinating on standards, through interlinking systems, to a fully shared, common mCBDC platform”. 9 There are a number of mCBDC platforms being explored, such as Project Jura (with the central banks of Switzerland and France), Project Dunbar (with Singapore, Malaysia, Australia and South Africa), and mBridge (with Hong Kong SAR, Thailand, China and the United Arab Emirates). Equally important is interoperability with existing core banking systems and the processes of commercial and central banks – a challenge tackled by Project Helvetia Phase II. This initiative, jointly led by the BIS, Swiss National Bank (SNB), and SIX (Switzerland’s main provider of financial infrastructure services) aimed to integrate wholesale CBDC with existing systems by leveraging tokenization and DLT. Helvetia Phase I had demonstrated that wholesale CBDC can be used to settle tokenized assets in central bank money. Helvetia Phase II, which was completed in January 2022, addressed practical complexities, legal questions, and policy implications by adding commercial banks to the experiment. This second phase of Helvetia demonstrated that integration of a wholesale central bank digital currency (CBDC) into existing core banking systems, which is complex and a key prerequisite for issuance, is operationally possible. 10 Another initiative seeking to ensure the development of an interoperable market landscape is the Regulated Liability Network (RLN). 11 The RLN, which uses shared ledger technology, may not require any changes to underlying legal instruments and instead simply represents the liabilities of different institutions. In essence, it tokenizes “regulated liabilities”, creating a digital record of the liabilities of central banks, commercial banks, and e-money issuers, based on existing national currency units. RLN may support “always on,” programmable and instant settlement. Pilot participants announced a key RLN proof of concept in November 2022. CBDCs are an important development in the digital money landscape. They have the potential to become more important if cryptocurrencies and stablecoins experience strong headwinds. 9 https://www.bis.org/publ/arpdf/ar2022e3.htm 10 https://www.bis.org/publ/othp45.htm 11 https://regulatedliabilitynetwork.org/ 54 Central Bank Digital Currencies: Opportunities, Challenges and Interoperability