Project Dunbar might light a match under central banks outside of Asia to speed up the development of central bank digital currencies (CBDCs) – including the U.S.
As announced through the Bank of International Settlements (BIS) in September, Project Dunbar will take shape as a CBDC platform, where several countries will issue CBDCs geared toward wholesale, cross-border use cases.
The cross-border settlement trials, according to the BIS, will include the Monetary Authority of Singapore (MAS), the Reserve Bank of Australia, Bank Negara Malaysia and the South African Reserve Bank.
The announcement follows the July details of research from the BIS, which found that the key focal points of CBDCs should include interoperability and coordination between banks.
Such interoperability would be achieved through “consistent standards” and “coordination of CBDC designs,” according to the report.
Looking at the Correspondent Banking System
The fact that Dunbar links up cross-border digital payments in the southeast Asia trading corridor is of interest. The correspondent banking system has been marked by friction and a lack of transparency when it comes to when funds will hit accounts and when they will settle.
It’s been well-documented that a significant number of central banks are examining the implications of CBDCs. Smaller nations, such as the Bahamas, have launched digital currencies for domestic use. But by bringing CBDCs onto the world stage, so to speak, and using them along the aforementioned trade corridor (India is also reportedly trialing its digital version of the rupee), the cooperation and interoperability cited by the BIS becomes a bit more solidified.
The dollar, as has been widely known, is the currency of reserve, and has also been used as a currency of trade – especially in the buying and selling of commodities.
And for the U.S., bringing digital dollars to the forefront – linking them to the development of cross-border corridors and platforms – means the dollars’ pre-eminence can be maintained.
In an interview with PYMNTS CEO Karen Webster, Jim Cunha, senior vice president of secure payments and FinTech at the Boston Fed, said that depending on the use case, digital fiat may not be a magic bullet, “but I can think of use cases where CBDC can help, especially if there’s a way of thinking about distribution. In my vision, this is not a token pointing to money. It’s not a token pointing to a bank account. It’s money.” He added that “whether we can actually even issue a digital currency has not been definitively determined.”