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JPMorgan estimates CBDCs could save corporates £100 billion in transaction costs

JPMorgan estimates CBDCs could save corporates £100 billion in transaction costs

A full-scale, multiple central bank digital currency (mCBDC) network could potentially save global corporates up to $100 billion in transaction costs annually, according to a joint research report from Oliver Wyman and JPMorgan.

The report estimates that of the nearly $24 trillion in wholesale payments that moved across borders via the correspondent banking network each year, global corporates incur more than $120 billion in total transaction costs; this excludes potential hidden costs in trapped liquidity and delayed settlements.

Jason Ekberg, partner, corporate and institutional banking at Oliver Wyman, states: “The case for CBDCs to address pain points in cross-border payments is very compelling. 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."

The research specifically outlines four critical elements required for mCBDC implementation, which include (i) the building blocks, from minting and redeeming of CBDCs to FX conversion and settlement; (ii) the roles and responsibilities of central banks, commercial banks, and service providers; (iii) the key design considerations covering data, technology, privacy, and credit extension; and (iv) the governance framework.

Naveen Mallela, global head of coin systems, Onyx by JPMorgan, comments: “Central banks around the world who are at various stages of CBDC development are considering how to build an infrastructure where systems operate and work together with the necessary controls in place. In this report, we put forward robust design considerations for a successful mCBDC network and demonstrate how it can be practically implemented, using ASEAN corridors as an example.”

Acknowledging that a mCBDC based network challenges traditional correspondent banking systems, the report cites opportunities for participants - commercial banks, payment operators, market makers and liquidity providers - to add new capabilities, and welcomes new stakeholders like technology providers and other third-party service providers.

“The development of CBDCs brings new tangible opportunities such as subscription-based mCBDC corridor access or smart contract-enabled cash management services. 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,” says Mallela.

Comments: (3)

Nick Ogden
Nick Ogden - RTGS.global - London 04 November, 2021, 10:36Be the first to give this comment the thumbs up 0 likes

The wholesale CBDC opportunity is a massive win for Regulators and Banks alike. They substantially reduce or remove credit risk, the cause of the last Global Financial crisis. In addition, they potentially change RWA assets to HQLA assets, reducing bank capital costs. In my view, the immediate opportunity is to fix the wholesale markets, and that goes a long way to reducing the $15Trn of financial friction costs that we (at RTGS.global) have been exposing for the past 2 years.


Christopher Williams
Christopher Williams - RTpay - Winchester Uk 04 November, 2021, 10:411 like 1 like

Good to hear such an optimistic forecast, but the question is 'how long will it take'? CBDCs should be a key element, but central banks are not noted for acting first or fast!

It may be the market maker role in each country  has to be commercial, at least in the beginning; in the same way as we are proposing for international remittances.  

Nick Ogden
Nick Ogden - RTGS.global - London 04 November, 2021, 10:52Be the first to give this comment the thumbs up 0 likes

@ Christopher, we can deploy this capability for central banks and commercial banks on our network next year... Banks can however start testing today.