BIS Says 'Hub and Spoke' Cross-Border Transfers Offer Benefits for Retail CBDC

.BIS_org Project Icebreaker tested a cross-border digital-currency payment method that lowers costs for retail users while providing benefits for central banks. camomileshumba reports

Explore the policy fallout from the 2022 market crash, the advance of CBDCs and more.

In the hub and spoke process, a cross-border transaction is broken down into two domestic payments facilitated by a foreign exchange provider active in both countries. That gives central banks almost complete control over their CBDC, while allowing competitive quotes for the exchange rate to be submitted to the hub so that end users can benefit from the best one.

"This competitive set-up mitigates the risk of insufficient liquidity in the desired currency pair, which can drive fees up and even delay the transaction," the BIS said."The project also demonstrated that the hub-and-spoke model can reduce settlement and counterparty risk by using coordinated payments in central bank money; and complete cross-border transactions within seconds.

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