There has been considerable work on the concept of using wholesale (interbank) central bank digital currencies (CBDCs) to address the frictions of cross-border payments. So far, only one project has taken the alternative route of interconnecting multiple national retail CBDCs to allow consumers or businesses to make direct international person-to-person payments.

To do just that, the Bank of Israel is working with the Norwegian and Swedish central banks and the Nordic BIS Innovation Hub on Project Icebreaker, as announced in September last year.

Speaking on a panel at the World Economic Forum event in Davos, Bank of Israel Governor Amir Yaron said the Icebreaker Project enables near-instantaneous cross-border payments without intermediaries. It uses a central hub developed by the Bank of Israel to interconnect national CBDC systems with minimal adaptations required.

“You want to have a complete matrix, all currencies against all currencies,” Governor Yaron said. “You want a system that is agile enough to do that. And it seems that this system is capable of doing it.”

The transactions are almost atomic, in the sense that the money leaves the Israeli payer’s wallet only if the money also reaches the beneficiary’s wallet in Sweden. If one side fails, the transaction does not occur.

Making person-to-person payments reduces the risk of failure by one of the intermediaries.

Governor Yaron noted that today cross-border payments often take days and are expensive. One of the reasons for the expense is that when a bank initiates a payment, it also executes the foreign currency exchange. This significantly reduces competition in domestic foreign currency transactions.

Instead, Project Icebreaker separates payment and foreign currency exchange, with the center acting as an intermediary for foreign currency exchange. We assume that private sector players could be involved in that, but we’ll have to wait for the report to find out.

There is one big caveat about this phase of project work. It has ignored anti-money laundering (AML) rules, one of the biggest frictions in cross-border payments.

Another issue is who will oversee a core CBDC platform like this. “Is it going to be a consolidation of central banks, international organizations like the IMF (or) BIS, private companies like Swift or others?” Governor Yaron asked.

Before talking about the Icebreaker Project, the central banker mentioned that CBDCs could be a public good, but can crowd out private services in certain circumstances. This could be a good example of something providing a public good by making cross-border payments faster and cheaper. But it has the potential to displace private payment providers.

Meanwhile, there are several wholesale cross-border CBDC projects, so-called Multi-CBDCs. These include Project MBridge, Project Dunbar, Project Jura, and Project Cedar Phase II x Ubin+.

The big difference with these projects is that they still include banks and payment providers for the payment stages.