NY Fed Official Says US CBDC Could Speed X-Border Transactions

Faster cross-border transactions could be one of the most significant benefits of a United States central bank digital currency (CBDC), a New York Fed official said.

For example, such a CBDC could reduce the time required for settlement of foreign exchange (FX) spot transactions from the current two days to just 10 seconds, Michelle Neal, executive vice president and head of markets at the Federal Reserve Bank of New York, said Friday (Nov. 4) in prepared remarks for a speech at the Singapore FinTech Festival.

Neal noted in the remarks that while the Federal Reserve is researching CBDCs, it has not issued one and has no immediate plans to do so.

The finding of that reduction in the time needed for settlement was made in research that is underway at the New York Fed’s New York Innovation Center (NYIC) in a project dubbed Project Cedar.

“FX spot transactions are critical in the context of cross-border payments, and serve as a building block for longer, more complex transactions,” Neal said in the remarks. “…By demonstrating improvements in settlement of FX spot transactions, the NYIC could address settlement time and risk, which would have implications to speed and access for the broader cross-border market.”

Others are researching this application of CBDCs too, Neal said.

The Bank for International Settlements (BIS) reported Wednesday (Nov. 2) that the central banks of France, Singapore and Switzerland are collaborating in a joint trial of their experimental CBDCs and decentralized finance (DeFi) protocols, with a focus on testing cross-border CBDC trading and settlement.

“This pioneering project pushes our CBDC research into innovative frontiers, incorporating some of the promising ideas of the DeFi ecosystem,” BIS Innovation Hub Head Cecilia Skingsley said at the time.

Beyond that, CBDCs are being used, tested or considered by 90% of the world’s central banks.

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