Global corporates could save $100bn in yearly transaction costs through CBDCs

A joint report from J.P Morgan and Oliver Wyman has predicted up to $100bn annually could be saved in transaction costs through a central bank digital currency (CBDC) network.

The report estimated that of the almost $24trn in wholesale payments that shifted across borders each year, many global corporates encounter over $120bn in total transaction costs – a total that excludes potential hidden costs in delayed settlements and trapped liquidity.

The research outlined four key elements required for the implementation of mCBDC, which included the building blocks such as minting and redeeming CBDCs to FX conversion and settlement, the roles and responsibilities of central banks, commercial banks and service providers, the key design considerations covering data, privacy, credit extension and technology. The last key element was the mCBDCs governance framework.

The report cited opportunities for participants – including commercial banks, market makers, liquidity providers and payment operators – to add new capabilities and welcome new stakeholders like technology and other third-party service providers.

Oliver Wyman partner, corporate and institutional banking Jason Ekberg said, “The case for CBDCs to address pain points in cross-border payments is very compelling. The bulk of today’s wholesale cross-border payments process remains sub-optimal due to multiple intermediaries between the sending and receiving banks, often resulting in high transaction costs, long settlement times, and lack of transparency on the status of the payments.”

Onyx by J.P Morgan global head of coin systems Naveen Mallela added, “Central banks around the world who are at various stages of CBDC development are considering how to build an infrastructure where systems operate and work together with the necessary controls in place. In this report, we put forward robust design considerations for a successful mCBDC network and demonstrate how it can be practically implemented, using ASEAN corridors as an example.

“The development of CBDCs brings new tangible opportunities such as subscription-based mCBDC corridor access or smart contract-enabled cash management services. The ability to pivot effectively and quickly is key, and ultimately we aspire for a cross-border payments system that is transparent, inclusive and efficient for all parties across central banks, corporates, and commercial banks.”

Elsewhere in the CBDC space, finance officials from the G7 recently endorsed 13 public policy principles for retail CBDCs.

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