- BIS finalized tests on Project Icebreaker in collaboration with Israel, Norway, and Sweden.
- The exercise tested the technical feasibility of cross-border, cross-currency transactions with different retail CBDC systems.
- According to BIS, this process will redefine the determination of exchange rates during cross-border transactions.
The Bank of International Settlements (BIS) has announced the conclusion of its trial exercise for a new architecture for cross-border retail CBDCs. BIS carried out the trial with the support of the central banks of Israel, Norway, and Sweden in an exercise tagged Project Icebreaker.
BIS noted it used the opportunity to test the technical feasibility of conducting cross-border and cross-currency transactions between different experimental retail CBDC systems. According to the financial institution, Project Icebreaker is about exploring how to interlink domestic financial systems.
BIS explained that the project structure is such that cross-border transactions get split into two domestic payments. The bank notes that a foreign exchange provider active in both domestic systems will facilitate both payments. Under this structure, there will be no need for retail CBDCs to leave their systems.
According to BIS, this process will redefine the determination of exchange rates during cross-border transactions. Unlike the existing structure, where the payer has no choice regarding the exchange rate, the Project Icebreaker model allows many foreign exchange providers to submit quotes. The system will auto-select the cheapest rate for the end users’ benefit.
For liquidity, BIS notes that the competitive exchange rates model mitigates the risks of insufficient liquidity, enables low fees, and promotes faster transactions. The financial institution also clarified that for situations where transactions between specific end currencies are unavailable, it would adopt bridge currencies.
BIS Innovation Hub Nordic Centre, Bank of Israel, Norges Bank, and Sveriges Riksbank carried out the technical feasibility of Project Icebreaker. According to Cecilia Skingsley, Head of the BIS Innovation Hub, the project is unique in its proposition in a way that it allows central banks to have autonomy in designing a retail domestic CBDC. However, she notes that at the same time, Project Icebreaker provides a model for the same CBDC to be used for international payments.