J.P. Morgan releases Unlocking $120 billion in Cross-Border Payments report
A full-scale multi-central bank digital currency (mCBDC) network that facilitates round-the-clock, cross-border payments in real time can potentially save global corporates up to $100 billion in transaction costs annually, according to a joint research report published today by Oliver Wyman and J.P. Morgan.
J.P. Morgan releases Unlocking $120 billion in Cross-Border Payments report – which outlines the implementation considerations for both central banks and commercial banks in developing, operating and governing mCBDCs – recognizes the potential of a central bank digital currency framework as an effective blueprint to introduce greater efficiencies that exist in wholesale payments occurring across borders.
The report estimates that of the nearly $24 trillion in wholesale payments that moved across borders each year, global corporates incur more $120 billion1 in total transaction costs; this excludes potential hidden costs in trapped liquidity and delayed settlements.
"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,
We believe cross-border payments facilitated by mCBDCs are best positioned to provide a truly seamless solution, and we have put forth potential mCBDC models and implementation roadmaps to make this a real possibility..."
Jason Ekberg, Partner, Corporate and Institutional Banking, Oliver Wyman
"...While there have been several initiatives in recent years led by private firms, commercial banks, and central banks to overcome the challenges, we have yet to see a scalable and seamless solution that works across countries, currencies and payment systems. We believe cross-border payments facilitated by mCBDCs are best positioned to provide a truly seamless solution and, we have put forth potential mCBDC models and implementation roadmaps to make this a real possibility,” Ekberg added."
The research specifically outlines four critical elements required for mCBDC implementation, which include (i) the building blocks, from minting and redeeming of CBDCs to FX conversion and settlement; (ii) the roles and responsibilities of central banks, commercial banks, and service providers; (iii) the key design considerations covering data, technology, privacy, and credit extension; and (iv) the governance framework.
While implementation considerations are applicable globally, the report puts focus on ASEAN, a region that operates across a diverse set of 10 currencies and contributes 7 percent of global cross-border trade.
“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,” said Naveen Mallela, Global Head of Coin Systems, Onyx by J.P. Morgan.
Acknowledging that a mCBDC based network challenges traditional correspondent banking systems, the report cites opportunities for participants – commercial banks, payment operators, market makers and liquidity providers – to add new capabilities, and welcomes new stakeholders like technology providers and other third-party service providers.
"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..."
Naveen Mallela, Global Head of Coin Systems, Onyx by J.P. Morgan
“...The development of CBDCs brings new, tangible opportunities such as subscription-based mCBDC corridor access or smart contract-enabled cash management services," said Mallela. "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.”