Driving CBDC interoperability for everyone, everywhere

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Approximately 90% of central banks around the world are exploring Central Bank Digital Currency (CBDC)¹ options, a new digital form of money that has the potential to provide central banks with the ability to offer consumers and merchants access to central bank money in the same way that cash is available today, but in a fully digital experience. This could be particularly valuable in countries where the infrastructure to distribute cash is unavailable or limited.

Global interest in CBDCs remains strong, as this digital currency is essentially seen as a potential mechanism to boost financial inclusion, spur economic efficiency, improve the stability of financial systems, and make the movement of public money more efficient, faster, traceable, and secure. As the CBDC push gains momentum, we have also seen certain central how to get spain number for whatsapp banks starting to consider both retail and wholesale CBDC models. Contrary to retail CBDCs, where central banks intend to leverage the electronic version of money to provide financial services to the public, wholesale CBDCs are designed for larger, low-volume transactions, such as settling wholesale interbank transactions.

Wholesale CBDCs can help improve the efficiency and speed of interbank settlements by reducing the need for intermediaries in the settlement process. These efficiencies could also translate into lower costs and could also reduce the risk of liquidity shortages and could ultimately contribute to the soundness of the financial system at large.

On the other hand, retail CBDCs could be used by the public in the same way as cash, only in digital format to make and receive fast and secure electronic payments. Among their benefits are that they are less expensive to handle than physical cash, and because they can be tracked, retail CBDCs are considered safer and less susceptible to risks such as loss or counterfeiting.

As central banks continue to explore retail CBDCs, issues of adoption, acceptance and widespread use have become top concerns for consumers at large. In fact, a recent, first-of-its-kind study by the Visa Innovation Center², conducted to assess the opinions and sentiments of Latin American and Caribbean customers and merchants on CBDCs, revealed that ensuring interoperability between existing platforms and new forms of money will be a critical element in driving widespread acceptance of CBDCs and ensuring that people and businesses can use them easily and intuitively from day one.

Research participants indicated that they would primarily use CBDCs if they were accepted everywhere, and merchants would only accept CBDCs if there were enough consumers paying with them. They also expressed concerns about having to make significant operational investments to accept CBDCs.

We therefore believe that for retail CBDCs to be widely accepted by everyone, everywhere in the region, a cross-chain interoperability mechanism is needed that can connect networks with existing financial payment systems and Real-Time Payments (RTP) networks, thus allowing CBDC transactions to move domestically and internationally in a seamless, decentralized and frictionless manner.

To help foster this ecosystem, at Visa we believe that public-private partnerships and a strong focus on end-user experience are critical to making digital currencies and blockchain networks interoperable. The good news is that cross-sector collaboration is taking place globally and in LAC.


Interoperability between blockchains

As the number of digital currency networks increases, each with unique design features, the likelihood that consumers, businesses, and merchants will transact on the same network and use the same type of digital currency decreases.

To address this, Visa’s research and product teams developed a concept to help move the conversation forward. We are working to develop a “Universal Payments Channel” (UPC) that acts as a hub that interconnects multiple blockchain networks and enables the secure transfer of digital currencies. Visa’s UPC would act as a “universal adapter” between blockchains, allowing central banks, businesses, and consumers to exchange value, regardless of the currency’s form factor.

In Brazil, for example, we worked with the Central Bank on the Brazilian CBDC LIFT Challenge. Visa was selected among the group of finalists for a project to design a functional UPC-based prototype that could enable instant global funds transfer for Brazilian SMEs through CBDC ledgers in a scalable and interoperable way. There are also new policies promoting regulatory interoperability such as the “Digital Economy Agreements” in Singapore, Australia, New Zealand, and Chile.³ Peru also established a new regulation requiring interoperability between all financial institutions, including the operation of digital wallets and the standardization of QR payments.

It is undeniable that interoperability is a key driver for the success of CBDCs and will serve as the foundation for creating seamless, flexible and widely accepted money movement experiences. It will also open the door to opportunities for merchants of all sizes to offer greater access to global funds and markets, reduce operational costs for e-commerce and cross-border B2B solutions, and reduce the administrative burden of managing different currencies and volatility.

Ensuring CBDC interoperability is an essential step that will shape the future of money movement as more ways to pay and get paid continue to emerge than ever before. CBDCs represent an important step in the evolution of public money, and we are excited to help connect CBDC networks with existing payment rails, driving innovation and social impact at scale for everyone, everywhere in the region.