Central bank digital currencies are being slowly tested in Europe, the U.S. and U.K. and are far from sure things, but payment companies are positioning themselves in case they take hold in those markets.
Mastercard last week launched a partner program for CBDCs, while Western Union and the Digital Dollar Project recently finished a test of cross-border CBDC payments. The projects are separate, but both are designed to position the payment firms to play a role if and when CBDCs are introduced in large countries such as the U.S.
Western Union, the Digital Dollar Project, Accenture and BDO Bank in the Philippines have built a platform that uses CBDCs for cross-border remittances.
"Remittances are more complicated than most [peer-to-peer] payments," said Kevin Mole, head of global digital assets for Western Union, noting that this is due to currency conversions and varied banking and regulatory infrastructures in different countries. "Our system talks to other banks and agents around the world. If we have to add another way to do that with CBDCs, we want our agents, clients and consumers to know we can."
In a test that used hypothetical digital U.S. dollars that converted to Philippine pesos, Western Union and its partners said the platform successfully enabled instant settlement. That reduced counterparty and credit risk, since the funds moved instantaneously and had to be backed by available currency. Also, CBDC instant settlement reduces the cost of capital, according to the partners.
"This project serves a population that we're talking about with CBDCs. That's inclusion of generally unbanked or underbanked people in the U.S. transferring small dollar amounts across the border," said Jennifer Lassiter, executive director of the Digital Dollar Project, adding that the aim of the initiative is to remove friction from processes such as know-your-customer fraud protection and transaction processing for payments involving multiple parties in different countries.
While there are dozens of
"It's really not in our court to say how fast or slow policy on CBDCs should be written," Mole said. "But by acting early we can bring something to that discussion. We're not advocating one way or another, but this has been an increasingly important topic for governments."
The Digital Dollar Project is a nonprofit organization that works with the private sector on CBDC initiatives and other digital assets. Part of its work is aiding interoperability between CBDCs in different countries. The organization's recent initiatives include a
"We see a very compelling argument for the role of public money," Lassiter said. "Because money is as much a social contract as an actual instrument, it's not just a central bank innovation. The stakeholder group is much wider, including banks, financial firms, [nongovernmental organizations] and nonprofits."
Other major legacy payment firms are also working on CBDC projects.
And Mastercard in late August launched a CBDC partner program for companies that are working on international projects. Its participants include Ripple, Consensys, Fluency and Giesecke+Devrient.
For example, Fluency, a blockchain company, is working on technology that can process transactions between countries with different CBDCs. Ripple, which supports international payments among its lines of business, is part of several CBDC projects, including in
Ripple uses open source development, blockchain and standardized messaging to support transactions involving CBDCs, traditional currencies, other digital assets or some combination of currency types. While the Ripple's projects are in relatively small jurisdictions, they provide a potential road map for international payments between larger countries that involve different types of currencies.
"By partnering with those who have complementary capabilities we can help governments experiment with CBDCs in more innovative ways, with more use cases," said Raj Dhamodharan, head of digital assets and blockchain at Mastercard.
Mastercard contends that it can offer scale for these projects, access to partners with different types of payments expertise, and a global network of financial institutions and merchants that could be potential users.
Mastercard's CBDC partner program follows the June launch of its
"The path toward building a CBDC is going to vary based on the market, so you have to be committed to collaborating with governments to help them deploy to the retail audience, if that is their objective, or the business audience if that is the goal," Dhamodharan said.
The Mastercard and Western Union initiatives focus on cross-border payments, which is where greatest opportunity resides, particularly for countries looking for an alternative to reserve currencies like the dollar, according to Aaron McPherson, a principal at AFM Consulting.
"The idea here is that CBDCs from various countries would trade on central infrastructure — both [the Bank for International Settlements] and Swift have run pilots of proposed infrastructure and create an alternative to the established correspondent banking system," McPherson said.
Western Union and Mastercard are functioning more in the role of conveners, but both have global networks that could be repurposed to support the kind of infrastructure for international CBDCs, McPherson said.
Companies like Western Union and Mastercard could bid on building infrastructure like
