JP Morgan issued “mCBDCs - Unlocking 120 billion value in cross-border payments“ which outlines the business case for a multi-currency central bank digital currency (mCBDC) network to address the pain points in the current cross-border payment system. Global corporates move $23.5 trillion across borders annually, incurring $120 billion in transaction costs due to inefficiencies in the correspondent banking network, such as high fees, long settlement times, and lack of transparency. The paper proposes that an mCBDC network could provide a scalable and seamless solution to these problems, potentially saving corporates nearly $100 billion annually.

The document highlights the key issues with the current cross-border payment system from the perspective of multinational corporations (MNCs). MNCs face high transaction costs (averaging $27 per transaction), long settlement times (2-3 days on average), and lack of payment transparency. For example, a $2,950 payment from Thailand to Indonesia can incur $40 in transaction costs alone, excluding foreign exchange (FX) fees and liquidity costs.

A multi-currency CBDC (mCBDC) network could address these pain points by enabling 24/7 real-time, cross-border, cross-currency payments and FX payment-versus-payment (PvP) settlements. This could potentially save global corporates nearly $100 billion annually.

Two potential models for an mCBDC network are discussed:

1. mCBDC: This model involves central banks partnering with commercial banks to develop, operate, and govern the network. It discusses the key design principles, building blocks, roles and responsibilities, and governance framework for such a model.

2. Multi-currency Digital Corridor Network: This is presented as an alternative and complementary model to mCBDC, where central banks and commercial banks collaborate to establish digital payment corridors between jurisdictions.

The paper delves deeper into the implementation considerations for the mCBDC model, covering the following critical elements:

• Target Design Principles: These include 24/7 availability, real-time settlement, programmability, interoperability, scalability, and regulatory compliance.

• Key Building Blocks: These include minting and redeeming CBDCs, liquidity provisioning, market making, and FX PvP settlements.

• Roles and Responsibilities: Central banks would be responsible for issuing and managing the mCBDC, while commercial banks would act as intermediaries, providing wallet services and liquidity to end-users. Technology companies could also play a role in providing infrastructure and services.

• Governance Model: This would involve a multilateral framework for managing network access, dispute resolution, and operational decisions.

The paper explores the potential implications of an mCBDC network on various stakeholders:

• Central Banks: Central banks would need to address considerations around monetary policy, financial stability, and regulatory oversight.

• Commercial Banks: Banks' cross-border payment and FX business models would be disrupted, but there could be opportunities to provide new services and generate revenue from the mCBDC ecosystem.

• Market Makers and Liquidity Providers: These participants could see reduced spreads and increased transparency, but also new opportunities to provide services within the mCBDC network.

• Payment Operators: Traditional payment operators may face disintermediation, but could also partner with central banks and commercial banks to provide services within the mCBDC ecosystem.

• Technology Upgrades: Broad technology upgrades would be required to support the mCBDC infrastructure and integration with existing systems.

The document also presents an alternative model called the "Multi-currency Digital Corridor Network" (mCDN). This model is based on establishing a cross-payment mechanism between digital corridors in different jurisdictions, enabling real-time international payments more efficiently than traditional systems.

The key features of this model include:

• Each digital corridor is administered by the central banks and/or financial institutions of each jurisdiction, connected through bilateral or multilateral agreements.

• It utilizes private or CBDC-based digital currencies rather than pure CBDCs.

• It facilitates real-time cross-border payments through payment-versus-payment (PvP) settlement between corridors.

• It can be a complementary model to the proposed mCBDC network, offering an alternative for jurisdictions that have not yet implemented CBDC.

This alternative model could be an interesting option for regions or countries not yet ready to implement a full mCBDC network, while still offering significant benefits in terms of cross-border payment efficiency.

In conclusion, the document makes a strong business case for an mCBDC network to address the pain points in the current cross-border payment system. It provides a comprehensive overview of the design, implementation, and implications of such a network, using the ASEAN region as an example. While the implementation considerations are complex, the potential benefits of unlocking $100 billion in annual savings for global corporates make a compelling argument for central banks and commercial banks to explore this solution further.

JP Morgan issued “mCBDCs - Unlocking 120 billion value in cross-border payments“ which outlines the business case for a multi-currency central bank digital currency (mCBDC) network to address the pain points in the current cross-border payment system. Global corporates move $23.5 trillion across borders annually, incurring $120 billion in transaction costs due to inefficiencies in the correspondent banking network, such as high fees, long settlement times, and lack of transparency. The paper proposes that an mCBDC network could provide a scalable and seamless solution to these problems, potentially saving corporates nearly $100 billion annually.

The document highlights the key issues with the current cross-border payment system from the perspective of multinational corporations (MNCs). MNCs face high transaction costs (averaging $27 per transaction), long settlement times (2-3 days on average), and lack of payment transparency. For example, a $2,950 payment from Thailand to Indonesia can incur $40 in transaction costs alone, excluding foreign exchange (FX) fees and liquidity costs.

A multi-currency CBDC (mCBDC) network could address these pain points by enabling 24/7 real-time, cross-border, cross-currency payments and FX payment-versus-payment (PvP) settlements. This could potentially save global corporates nearly $100 billion annually.

Two potential models for an mCBDC network are discussed:

1. mCBDC: This model involves central banks partnering with commercial banks to develop, operate, and govern the network. It discusses the key design principles, building blocks, roles and responsibilities, and governance framework for such a model.

2. Multi-currency Digital Corridor Network: This is presented as an alternative and complementary model to mCBDC, where central banks and commercial banks collaborate to establish digital payment corridors between jurisdictions.

The paper delves deeper into the implementation considerations for the mCBDC model, covering the following critical elements:

• Target Design Principles: These include 24/7 availability, real-time settlement, programmability, interoperability, scalability, and regulatory compliance.

• Key Building Blocks: These include minting and redeeming CBDCs, liquidity provisioning, market making, and FX PvP settlements.

• Roles and Responsibilities: Central banks would be responsible for issuing and managing the mCBDC, while commercial banks would act as intermediaries, providing wallet services and liquidity to end-users. Technology companies could also play a role in providing infrastructure and services.

• Governance Model: This would involve a multilateral framework for managing network access, dispute resolution, and operational decisions.

The paper explores the potential implications of an mCBDC network on various stakeholders:

• Central Banks: Central banks would need to address considerations around monetary policy, financial stability, and regulatory oversight.

• Commercial Banks: Banks' cross-border payment and FX business models would be disrupted, but there could be opportunities to provide new services and generate revenue from the mCBDC ecosystem.

• Market Makers and Liquidity Providers: These participants could see reduced spreads and increased transparency, but also new opportunities to provide services within the mCBDC network.

• Payment Operators: Traditional payment operators may face disintermediation, but could also partner with central banks and commercial banks to provide services within the mCBDC ecosystem.

• Technology Upgrades: Broad technology upgrades would be required to support the mCBDC infrastructure and integration with existing systems.

The document also presents an alternative model called the "Multi-currency Digital Corridor Network" (mCDN). This model is based on establishing a cross-payment mechanism between digital corridors in different jurisdictions, enabling real-time international payments more efficiently than traditional systems.

The key features of this model include:

• Each digital corridor is administered by the central banks and/or financial institutions of each jurisdiction, connected through bilateral or multilateral agreements.

• It utilizes private or CBDC-based digital currencies rather than pure CBDCs.

• It facilitates real-time cross-border payments through payment-versus-payment (PvP) settlement between corridors.

• It can be a complementary model to the proposed mCBDC network, offering an alternative for jurisdictions that have not yet implemented CBDC.

This alternative model could be an interesting option for regions or countries not yet ready to implement a full mCBDC network, while still offering significant benefits in terms of cross-border payment efficiency.

In conclusion, the document makes a strong business case for an mCBDC network to address the pain points in the current cross-border payment system. It provides a comprehensive overview of the design, implementation, and implications of such a network, using the ASEAN region as an example. While the implementation considerations are complex, the potential benefits of unlocking $100 billion in annual savings for global corporates make a compelling argument for central banks and commercial banks to explore this solution further.