There has been a significant increase in the cross-border freelancing segment, which grew by approximately 30% (to a size of fifty-nine million) during the pandemic. This rise as well as the shortage of skills led to countries creating favorable visa regimes and organizations embracing remote working arrangements. As per a popular freelancing platform, 74% of their revenues in 2022 came from freelancers outside USA. Despite the rapid growth in the cross-border freelance sector, there is no respite to the payment challenges faced by them.

Payment challenges of cross-border freelancers

 When working on projects for overseas clients, freelancers face a few challenges, chief among them are:

• Payment options: Options are limited to what works across the client’s country and the freelancer’s country.
• Currency conversion fee: Money transfer service providers charge a hefty fee (as much as 10-15%) for currency conversion. This can eat significantly into the earnings of a freelancer.
• Currency conversion rates: Money transfer service providers often markup or markdown currency to a rate that is favorable to them.
• Payment processing time: Quiet often cross-border payments take long to clear, which can delay the receiving of funds. This also puts the additional burden of tracking payments on the freelancer.

Central Bank Digital Currencies (CBDCs) can help address some of the challenges faced by cross-border freelancers today.

CBDC adoption on the rise

CBDC is the digital form of a country’s fiat currency, which is issued and backed by it’s central bank. This new form of currency is being adopted rapidly across the world. As per the statistics gathered by a well-known American think tank , as many as 114 countries are exploring CBDCs. Eleven countries have already launched a digital currency and over twenty countries are taking significant steps towards piloting it by 2023. If the current trend is any indication, many major economies across the globe will witness the launch of CBDCs in the ensuing decade. CBDCs will provide an array of benefits, including improved efficiency and swift cross-border payments, which will help alleviate the challenges faced by cross-border freelancers.

BIS (Bank for International Settlements) projects in cross-border payments

The Bank for International Settlements is collaborating with central banks of various countries to explore the potential benefits and challenges in issuing CBDCs. Some of the most popular use cases validated through these projects are around cross-border payments, such as:

• Project Dunbar - It explores how a common platform for multiple central bank digital currencies (multi-CBDCs) can enable faster, cost-effective and safer cross-border payments.
• Project Icebreaker - BIS Innovation Hub and the central banks of Israel, Norway and Sweden are exploring the use of CBDCs for international retail and remittance payments.
• Project mBridge - BIS Innovation Hub and central banks of four different countries developed mBridge (multiple CBDC Bridge) to demonstrate the use of digital currencies and distributed ledger technology (DLT) for delivering real-time, cost-effective, secure and universally accessible cross-border payments and settlements.

A better world of payments for cross-border freelancers

When central and commercial banks set up the CBDC infrastructure, they can deliver cross-border payment solutions that address the needs of freelancers. They can make it effortless and economical for freelancers to receive payments in real-time while ensuring a higher level of security and reducing risk of fraud. In a world of CBDCs, freelancers can work across national boundaries unfettered by payment options.