University of Twente Student Theses
Settlement of cross-border transactions through Central Bank Digital Currency (CBDC) : analysis from a risk management perspective
Ginneken, C.L. van (2019) Settlement of cross-border transactions through Central Bank Digital Currency (CBDC) : analysis from a risk management perspective.
|
PDF
6MB |
| Abstract: | A study on Central Bank Digital Currencies (CBDC) and their financial impact on the cross-border transaction landscape. CBDC is essentially a digital currency issued and/or backed by the central bank, with 1-1 convertibility into fiat currencies. Whereas domestic payments are already instant, cheap and transparent, cross-border interbank transactions are subject to several issues. Dependency on correspondent banking networks causes significant delays in payments processing, leading up to multiple days. Central bank operating hours, time zone impediments, lack of end-to-end visibility and legacy payments infrastructure challenges also increase exposure to financial risks, which adds up to total transaction costs. Near real-time settlement of transactions on a peer-to-peer basis with round-the-clock availability would wipe out a substantial portion of financial risks. Interest rate, foreign exchange, counterparty and settlement risk vanish almost completely. Liquidity reduces significantly. Further research should focus on quantifying operational risks, as this poses most challenges. Settling cross-border interbank transactions via CBDC could reduce transaction costs by 51%. Additionally, a commercial bank can save up to €37 million annually. We recommend financial institutions to work collaboratively on implementing a distributed ledger platform to alleviate responsibilities and costs for central banks. |
| Item Type: | Essay (Master) |
| Clients: | ING Bank, Amsterdam, Netherlands |
| Faculty: | BMS: Behavioural, Management and Social Sciences |
| Subject: | 30 exact sciences in general, 50 technical science in general, 83 economics |
| Programme: | Industrial Engineering and Management MSc (60029) |
| Link to this item: | https://purl.utwente.nl/essays/78027 |
| Export this item as: | BibTeX EndNote HTML Citation Reference Manager |
Show download statistics for this publication
Show download statistics for this publicationRepository Staff Only: item control page