Global CBDC Competition: EU Commissioner Suggests Global Regulation May Be Needed

According to data released by the International Monetary Fund (IMF), approximately 97 countries are currently researching, testing, or deploying Central Bank Digital Currencies (CBDCs). This raises the question of how different CBDCs will cooperate to enable cross-border payments. Paolo Gentiloni, responsible for economic policies at the European Commission, also highlighted another issue at the Digital Euro Conference: CBDCs may require an international transaction network to prevent state-supported funds from encroaching on the sovereignty of other countries.

BIS Coordinates Various Projects with Central Banks Worldwide

The Bank for International Settlements (BIS) is an international organization dedicated to international monetary and fiscal policy cooperation, established in 1930. Currently, it consists of central banks or financial authorities from 60 countries and regions, with its headquarters in Basel, Switzerland. Its Innovation Hub brings together central banks and financial regulatory institutions from various countries to launch a series of projects related to Central Bank Digital Currency (CBDC), aiming to integrate efforts globally to develop a universal platform as the basis for future CBDC development worldwide.

Below are the CBDC projects executed by BIS this year, with participation from countries such as the Eurozone, Australia, and Singapore.

Bank of Korea (BoK) Completes Cross-Border Remittances and NFT Purchases

South Korea began experimenting with CBDC last year, collaborating with blockchain company Ground X to build a CBDC platform. The first phase involved creating, issuing, redeeming digital assets, and establishing wallets. The second phase, started this year, explores possibilities like smart contracts, Layer 2 scalability, zero-knowledge (zk) proof technology, offline payments, tokenization, and cross-border settlements. According to a recent report by Yonhap News, the project has completed tests on cross-border remittances and NFT purchases, demonstrating that the CBDC can process up to 2,000 transactions per second.

BoK also conducted scalability experiments with over 10 commercial banks to develop a CBDC that simulates real financial service environments. The key is to connect the CBDC with the IT systems of test financial institutions to ensure smooth transfers and payments between users. It also involves establishing virtual anti-money laundering (AML) and counter-terrorism financing (CFT) monitoring systems based on rules like Suspicious Transaction Reports (STR) and Currency Transaction Reports (CTR).

Challenges of International CBDC Collaboration

Previously, we reported on Singapore's Project Ubin and Project Jasper. While the United States is not directly involved in the BIS projects, the New York Federal Reserve Bank has established a strategic partnership with BIS and completed wholesale CBDC simulation tests through Project Cedar.

According to the report by Nikkei Asia, the Bank of Japan has coordinated with three major banks and regional banks to conduct demonstration tests for issuing a digital yen. Starting from spring 2023, they plan to test verifying bank account deposits and withdrawals and assess if the system can operate without internet access during emergencies. Japan plans to conduct experiments for about two years and decide on issuing its CBDC by 2026.

Paolo Gentiloni, responsible for economic policies at the European Commission, also highlighted another issue at the Digital Euro conference: CBDCs may require an international transaction network to prevent countries' supported funds from infringing on other countries' sovereignty. As countries rush to showcase successful CBDC cases, questions arise about whether these platforms can be interoperable, the need for specific agreements with other jurisdictions, etc., which could be crucial for the global expansion of CBDCs.