Seamless Interoperability of CBDC Systems and Fast Payments: Key Designs and Future Integration

The report investigates the crucial interoperability between Central Bank Digital Currency (CBDC) systems and fast payment systems, emphasizing key design and operational aspects to ensure seamless value exchange and efficiency. It highlights the need for ongoing research and collaboration to refine these models for integrated national and global payment networks.

The World Bank's recent report delves into the intricate process of achieving interoperability between Central Bank Digital Currency (CBDC) systems and fast payment systems, highlighting the significant design and operational considerations necessary for integrating CBDCs with existing national payment infrastructures. As central banks globally explore the benefits and challenges of both wholesale (wCBDC) and retail (rCBDC) models, the report underscores the necessity of interoperability to prevent fragmentation within national payment systems, thereby enabling seamless value flow across various forms of money and accounts.

Global Efforts in CBDC Integration

The World Bank's Technology and Innovation Lab (ITSTI) has been at the forefront of this research, conducting hands-on technological experimentation and building internal knowledge about emerging technologies related to CBDCs. Their collaboration with the Finance Competitiveness and Innovation (FCI) Global Practice has led to the development of two primary scenarios for CBDC system interoperability with fast payment systems (FPS). In the first scenario, the focus is on settling FPS obligations within a wholesale CBDC system. This scenario involves reserving funds to guarantee the settlement of net obligations, illustrating how wholesale CBDCs can support fast payments through pre-funding mechanisms. The second scenario examines the interoperability between retail CBDC users and FPS users, highlighting the potential for transferring funds across these systems using common services like address resolution. While the technical feasibility of these interoperability models has been demonstrated, the report acknowledges that real-world complexities may introduce additional challenges. Ensuring that CBDCs can be exchanged with existing payment instruments is crucial for their practical utility within domestic payment systems. This capability would enhance overall payment system efficiency by providing instant settlement and extending access to excluded segments of the population.

Domestic and Cross-Border Payment Innovations

The report identifies three high-level interoperability scenarios for domestic CBDC systems. The first involves the interoperability between wholesale CBDC systems and Real Time Gross Settlement (RTGS) systems, facilitating exchanges of CBDCs with central bank funds. The second scenario addresses the interoperability between retail payment systems and wholesale CBDC systems, where retail payments are settled in wholesale CBDCs. The third scenario focuses on interoperability between retail CBDC systems and FPS, enabling real-time fund transfers through a bridging mechanism. Beyond domestic payment systems, the report also considers cross-border payment system interoperability, a significant area under the G20's cross-border payments roadmap. It highlights various models for integrating CBDCs at a global level, including single-access points, bilateral links, and hub-and-spoke solutions.

Technological Experimentation and Key Components

Technological experimentation has played a crucial role in these findings. The research team utilized a private Ethereum implementation and the Mojaloop Foundation’s open-source software to simulate FPS environments. A critical component of this setup is the interoperability bridge, which facilitates communication between the CBDC and FPS systems, handling events and triggering appropriate actions through APIs and smart contracts. Despite the promising results, several challenges and open questions remain. Scalability is a primary concern, especially regarding the capacity to handle high transaction loads. The report suggests that future work should focus on designing for horizontal scalability, which would involve adding more computing resources to manage the transaction load. Additionally, operational differences between various market infrastructures, such as FPS and CBDC systems, could affect their performance. These differences, including roles, access models, and governance structures, require detailed studies to understand their impact on transaction settlement and clearing processes.

Future Directions and Collaborative Efforts

Another significant consideration is the role of payment service providers (PSPs) in enabling CBDC interoperability with other payment systems. The positioning of wholesale or retail CBDC systems within the national payment system will determine the required interoperability. For instance, an rCBDC system targeting financial inclusion would need to be tightly connected with other retail payment systems to ensure the seamless flow of funds. The report concludes by emphasizing that while the technical feasibility of CBDC and FPS interoperability has been demonstrated, further research and collaboration with stakeholders are essential to refine these models. Engaging with operators of payment market infrastructures, central banks, financial institutions, technology providers, and researchers will be crucial to building upon this work. As CBDCs evolve, their integration with both legacy and new payment systems will be vital to maintaining a cohesive and efficient national and global payment landscape. Through this comprehensive approach, the World Bank aims to foster continued innovation and research in the realm of CBDC interoperability, ensuring that future payment systems are both inclusive and resilient.