Wednesday, June 12

Project Icebreaker: BIS has developed its own mechanism for operations with CBDC

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Project Icebreaker enables faster cross-border payments for CBDC

The Bank for International Settlements, in cooperation with regulators in Israel, Norway, and Sweden, studied the potential of CBDC for cross-border payments. The Icebreaker project focused primarily on identifying the advantages and problems of digital money and the possibility of its integration into the international financial system. Special attention was paid to analyzing the hub-and-spoke mechanism, often used to combine internal CBDC structures. During testing, international transactions requiring the participation of intermediaries were divided into two domestic transactions. This approach allows payment to be made in intermediate currencies. This, in turn, enables CBDC to remain within the internal ecosystem.
Project participants note that this solution has reduced transaction risk for counterparties. In addition, the approach has sped up the transaction. The Icebreaker model is based on the possibility of deploying a special hub, which will serve as a repository of quotes from suppliers of different currencies. The system automatically searches for the most favorable rate to exchange CBDC for one of the intermediate currencies. According to experts, this approach minimizes the risk of low liquidity. In turn, this leads to an increase in commission.
The mechanism used in the project has several advantages. In the payment process, suppliers buy currency in one internal system while it is sold in another. The HTLC contract is used, significantly increasing the transaction’s speed.
However, the project’s authors have yet to disclose all the details of the transactions mechanism with CBDC. For example, there has yet to be an explanation of how intermediate currencies will function in this mechanism. The question remains open as to who will develop them: central banks or the system will apply the most popular options.

Project Icebreaker CBDC

The Icebreaker model

The Icebreaker model allows you to minimize the number of connections between systems of different CBDCs. In this case, the Icebreaker hub only organizes the movement of payments; it does not process them. The system analyzes data from suppliers and compares them to find the optimal currency pair. In addition, this approach works perfectly with different CBDC systems. To implement it, you can skip specific technical requirements. This allows regulators to take other methods to develop their own digital money. The only prerequisite is to ensure the interconnections on which cross-border transactions are based.
According to BIS, their international payments model is currently the optimal solution for risk minimization and transaction speed. In addition, most systems in use do not provide a choice of currency pairs, resulting in higher fees. In the case of Icebreaker, the system determines the rate that will be most attractive to the client.


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