Central bank digital currencies could save global corporations $100 billion per year, JPMorgan says

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  • CBDCs could save global corporations around $US100 ($AU135) billion per year, JPMorgan said.
  • The 35-page report looked into a full-scale multi-CBDC network that would operate 24/7 in real-time.
  • It focused on Southeast Asia, which contributes 7% of global cross-border trade and has almost a dozen currencies.

Central bank digital currencies could save global corporations around $US100 ($AU135) billion per year, an amount they would have otherwise spent processing cross-border transactions, JPMorgan said in a recent report.

The 35-page report, written with Oliver Wyman, a management consulting company, looked into a full-scale multi-CBDC or mCBDC network that would operate 24/7 in real-time. It focused on Southeast Asia, which contributes approximately 7% of global cross-border trade, has almost a dozen currencies, and is home to thousands of European, Asian, and North American multinational corporations.

While banks and foreign exchange firms would have to rethink their current offerings and operating models, an mCDBC could “yield long-term benefits for all participants,” JPM said.

Globally, corporations move nearly $US23.5 ($AU32) trillion across countries per year, JPM added, noting how this is equivalent to about 25% of the world’s entire gross domestic product. And despite the whopping figure, banks have had to “rely on wholesale cross-border payment processes which remain sub-optimal from a cost, speed, and transparency standpoint,” JPM said.

On top of these, there are the additional costs from foreign exchange conversion, trapped liquidity, and delayed settlements, the investment bank added.

JPM did note numerous initiatives already set in place from SWIFT’s continuous linked settlement, or CLS, a multicurrency settlement system, to ones initiated by the central banks of Hong Kong and Thailand. However, it reiterated how it has yet to see a “scalable and seamless solution that can work across countries, currencies, and payment systems.”

The investment bank proposed three potential models: RTGS upgrades, bilateral CBDC lite, and full-scale mCBDC.

Model 1 – upgrades to RTGS, or real-time gross settlement – would still rely on the correspondent banking network but would use CBDCs for clearing, settlement, and FX conversion. This model, JPM said, would potentially offer 24/7 operations, which would improve liquidity and reduce settlement risk concerns. It would however still be a victim of high transaction costs and long transaction times.

Model 2 – bilateral CBDC lite – would entail a bilateral interlinked arrangement between two CBDC settlement systems which may pave the way for potential regulatory standardization. Since central banks directly hold accounts at each other’s respective RTGS systems, this reduces the dependency on correspondent banks, JPM said. This model would sacrifice scalability though, the bank added.

Model 3 -full-scale mCBDC – would introduce a single platform for multiple jurisdictions, which would help resolve the scalability constraints in Model 2. But this would need coordination at the highest level.

“There is no optimal model among the three and, as such, we expect them to co-exist,” the bank said.

CBDCs have been front and center of the digital asset conversation as crypto markets boom. The Federal Reserve for its part has been working on its long-awaited paper CBDC paper.

Fed Chair Jerome Powell first noted that the US central bank was researching a digital dollar in April, and again in May, noting a discussion paper will be released over the summer.

Powell has floated the possibility of CBDCs negating the need for stablecoins, a type of cryptocurrency pegged to an asset such as a fiat currency or a precious metal.