CBDCs can Help save $100 billion in Transaction Costs Says JPMorgan

CBDC network can potentially save multinational corporations about $100 billion yearly in transaction costs. A report titled ‘Unlocking $120 Billion Value in Cross-Border Payments’ by Oliver Wyman and JP Morgan revealed this.

The Problem

According to the report, multinationals move over $23 trillion annually. This figure amounts to around 25% of the world’s GDP. Unfortunately, the cross-border payment process required to make this happen remains sub-optimal. Transaction costs exceed $120 billion yearly. Also, there is often some delay in settlements, and there are issues relating to transparency.

Further, the report suggests that the challenges with the system are the result of gaps in existing infrastructure and the lack of legal, regulatory, and operational consistency across places.

A Senior Treasury Manager, Global Packaging MNC stated, “While the current systems have been optimized to handle day-to-day transactions, the non-regular, high-value and time-pressured transactions are a real problem area an area to improve.”

To forestall this problem, several private organizations have tried to create a holistic system-wide solution. While there has been some degree of success, there is nothing seamless about their processes. The report subsequently proposes the adoption of an mCBDC corridor network model as an alternative to traditional banking.

The Solution: How the CBDC network will work

Unlike the traditional payment rail, using the mCBDC network allows you to effect cross-border payments as a peer-to-peer transaction using central bank digital currencies. JP Morgan and Oliver Wyman have provided three models for the network to be effected. The Central Bank remains key to the entire process.

To facilitate this, three key components of the mCBDC network would need to be provided by the Central Bank. They include Mint and Redemption Functionality, Liquidity Provisioning and Market Making, and FX Trade Settlement (PVP and Netting).

Finally, the report also noted the impact and opportunities for every stakeholder including the Central Bank, Commercial Bank, market makers, liquidity operators, and payment operators. Indications are that it is a win-win situation for everyone who embraces the CBDC network.

Regarding this, JPMorgan Global Head of Coin Systems Naveen Mallela had this to say, “The development of CBDCs brings new, tangible opportunities such as subscription-based mCBDC corridor access or smart contract-enabled cash management services.”