Banking giant JP Morgan and consulting firm Oliver Wyman have released a report which estimated that a full-scale multi-central bank digital currency (mCBDC) could save up to $100 billion in cross-border payments costs for companies across the globe.
The report entitled “Unlocking $120 Billion Value in Cross-Border Payments” determined that firms move approximately $24 trillion in cross-border wholesale payments annually, roughly 25% of the world GDP. The transactions result in corporations spending about $120 billion in total transaction costs.
“The bulk of today’s wholesale cross-border payments process remains sub-optimal due to multiple intermediaries between the sending and receiving banks, often resulting in high transaction costs, long settlement times, and lack of transparency on the status of the payments,” said Jason Ekberg, a partner at Oliver Wyman.
The 35-page report suggested that by cutting out intermediaries in the payments chain and using DLT, a full-scale multi-CBDC can function 24/7 and in real-time for cross-border, cross-currency payments.
JP Morgan focused on the ASEAN region, comprising 7% of the world’s global cross-border trade. The region, which consists of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam, contributed over 15% in net revenue for Corporate and Investment Banking (CIB) of JP Morgan in 2020.
The report has proposed an ideal mCBDC model that has taken into account the process from CBDC issuance and cashing to foreign exchange conversion and settlement. The model would offer a single platform for multiple jurisdictions, hence requiring high-scale coordination.
“The development of CBDCs brings new, tangible opportunities such as subscription-based mCBDC corridor access or smart contract-enabled cash management services,” said Naveen Mallela, Global Head of Coin Systems, Onyx by J.P. Morgan, in a statement He added:
“The ability to pivot effectively and quickly is key, and ultimately we aspire for a cross-border payments system that is transparent, inclusive and efficient for all parties across central banks, corporates, and commercial banks.”