CBDC's Cross Border Payments System: Worse than Crypto

By xuanling11 | Crypto Learning | 28 Aug 2021

Singapore’s Central Bank is testing cross-border payments using multiple CBDCs. So what is a cross-border payments system? We may find some insights here.


Why do we need a cross-border payments system?

When CBDC crosses from one country to another, its exchange rate may differ. We need a solution to settle payment instantly that competes with cryptocurrencies.


Why do cryptocurrencies work better internationally?

 Cryptocurrencies’ value is uniformly cross international. Sending crypto from one corner of the world to another is seamless as long as both parties are on the Internet.


What makes CBDC’s cross-border payments system different from crypto?

It is a centralized digital currency that requires verification of identification during the transaction. There will have a third party to facilitate from the beginning to the end of the payment process.


6 steps of the payment process to send CBDC cross border


There are listed as follow:

  1. Sender identify receiver’s CBDC
  2. Select the correct exchange rate from both CBDCs
  3. Verify both parties identification 
  4. Identify receiver CBDC from the bank
  5. Central banks verify both parties’ banking
  6. Process the payment


Why is it so complicated?

The central bank will have to monitor in each step to make sure the transaction is verified and each party has been identified.


Can CBDC implement Automated Market Maker?

Yes, but it will not make the process easier. The identification verification process will be needed even if the exchange can carry out transactions automatically.


How long will it take to process the CBDC across the border?

It may take longer if different counties require to verify parties’ identification and one country does not have kept database to verify their users.


One potential solution to speed up the process 

The central bank may store your identification on their database in order to verify it automatically.


Your identity will be linked with your CBDC

It is likely that you will have your identification linked to your CBDC and the wallet.


Likely government may share identification cross the border 

To facilitate a faster payment process, you may need to share data to both banks in order to speed up your verification process.


Cryptocurrency seems a better choice

Why go through this process to potentially leak your privacy to governments with a slower payment process.


In conclusion 

Cryptocurrencies are a better choice to exchange internationally. However, CBDC is catching up but the privacy concerns may slow down their development.


Photo by Christine Roy on Unsplash

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Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose cryptocurrencies are mentioned in this article. This information is only for educational

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