Today the Bank for International Settlements (BIS) published a paper on central bank digital currencies (CBDCs) and the future of cross border payments. As numerous central banks explore CBDCs, there’s a natural focus on domestic requirements. The BIS hopes to encourage banks to explore cross border payments at the design stage and outlines three potential approaches.
The paper highlights two reasons why cross border payments have become increasingly challenging.
There has been a decline in the number of correspondent banks, which play a critical role in international payments. These correspondents provide a service so that banks that don’t have accounts at the destination can send money across borders. As an example of the contraction, in Central, South America and the Caribbean, there was a 30% decline between 2012 and 2018.
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