Home Payments Cross-border payments project offers lessons for retail CBDC architects

Cross-border payments project offers lessons for retail CBDC architects

Project Icebreaker: Global Government Fintech coverage of the launch of the initiative, which has now concluded with the publication of a 42-page report (whose cover page is on the right)

One of the world’s first experiments to test cross-border retail central bank digital currency (CBDC) payments has concluded, with one of the key figures involved describing its conclusions as an ‘invaluable’ contribution to the global challenge of improving cross-currency payments.

The Bank for International Settlements (BIS) Innovation Hub’s Nordic centre collaborated with the central banks of Israel, Norway and Sweden on the experiment – dubbed ‘Project Icebreaker’ – to explore the potential benefits and challenges of using retail CBDC for cross-border transactions. 

The technical project explored a specific method to interlink domestic systems (a so-called ‘hub-and-spoke’ solution) with a cross-border transaction broken down into two domestic payments, facilitated by a foreign exchange provider active in both domestic systems. So, the retail CBDCs never need to leave their own systems. 

Under existing cross-border payment systems, funds typically travel via several different banks to the final recipient (the so-called correspondent banking system through which a ‘correspondent bank’ provides local account and payment services for banks located abroad), meaning that the payer has no choice regarding the exchange rate. In the Icebreaker model, many foreign exchange providers can submit quotes to the system’s hub, which automatically selects the cheaper one for the end user.

The project was announced in September 2022, less than three months after the BIS Innovation Hub, BIS-housed Committee on Payments and Market Infrastructures (CPMI), International Monetary Fund (IMF) and World Bank jointly published a report titled ‘Options for access to and interoperability of CBDCs for cross-border payments’. This set out how central banks face important decisions on interoperability and cross-border usage ‘if CBDCs are to fulfil their potential’.


‘Central banks have almost full autonomy’

Project Icebreaker’s experimentation is detailed in a 42-page ‘Breaking new paths in cross-border retail CBDC payments’ report.

The competitive set-up (in terms of foreign exchange providers) ‘mitigates the risk of insufficient liquidity in the desired currency pair, which can drive fees up and even delay the transaction’, the authorities explain, adding that the Icebreaker system ‘implements the use of bridge currencies if transactions between two specific end currencies are unavailable, or not favourable, promoting competition among foreign exchange providers’ (a bridge currency is a currency used as an intermediate step in an exchange between two currencies for which there is no direct exchange rate or the rate is unfavourable).

The project also demonstrated that the hub-and-spoke model can reduce settlement and counterparty risk by using co-ordinated payments in central bank money, as well as complete cross-border transactions ‘within seconds’.

For countries considering the development of a domestic CBDC, the project provides a model for extending them and ‘innovative services’ into cross-border transactions, according to the Icebreaker conclusions.

‘The validation of the Icebreaker model shows that central banks have almost full autonomy when designing their domestic rCBDC [retail CBDC] system,’ the report concludes. ‘They can opt to use different technology solutions, while still being able to participate in a formalised interlinking arrangement.’


Minimum technical requirements

Implementing the Icebreaker model in the real world would require a range of policy and legal considerations to be addressed, as well as technical choices, the report points out. Legal considerations, for example, would include a sound legal basis for the hub, the potential conflict of laws and regulation between connected retail CBDC systems and conflict resolution.

There are two minimum technical requirements for those considering further research using the Icebreaker model, the report states. First, that the retail CBDC system must be able to implement Hash Time Locked Contracts (HTLC)-based conditional settlement – an HTLC is a type of smart contract used in distributed- ledger technology (DLT) applications to reduce counterparty risk by creating a time-based escrow (further account) that requires a cryptographic passphrase to unlock it; and, second, that the retail CBDC system must be able to operate in real time (or ‘near real time’) 24/7/365 to maximise speed and minimise failed payments due to timeout in settlement and message response.

Two main considerations could be explored further for the Icebreaker model. First, what is referred to as a ‘stateful hub’, which was an alternative design that was investigated but not implemented in the project, and envisioned a more active role for the hub in ‘interpreting payment messages and sending partial payment instruction details to the participating wallets’; and, second, alternatives to HTLC.

Broader recommendations to a central bank considering implementing a retail CBDC system include: to consider ways to incorporate conditional settlement, for example HTLC; to consider ways to ensure system availability and short response times 24/7/365 to maximise speed and minimise failed payments; and to promote transparent and competitive incentives for foreign-exchange providers.

RELATED READING ‘Project Icebreaker’ to test ‘immediate’ cross-border retail CBDC payments – our article (30 September 2022) on the project’s launch

‘More work is still required’

Cecilia Skingsley speaking at the Bank of England on 28 February 2023 | Credit: Ian Hall

The BIS Innovation Hub’s Nordic centre opened in 2021 in Stockholm. It is hosted by the Riksbank, working in partnership with Norges Bank, Danmarks Nationalbank and Central Bank of Iceland, and headed by Beju Shah, who was formerly special adviser for digital innovation at the Bank of England (BoE).

“More work is still required for retail CBDC but the learnings from this project are invaluable for central banks,” Shah said, reflecting on the Icebreaker project.  

The Nordic centre is also running a separate CBDC-related initiative called ‘Project Polaris’, which is examining the challenges of offline payments functionality, security and resilience. One non-CBDC project also being overseen by Shah’s team is the recently launched ‘Project Aurora’, which is investigating how privacy-enhancing technologies, artificial intelligence (AI) and network analytics can be used on centralised payments data to better identify money laundering, terrorist financing, illicit finance, fraud or systemic risks (both within and across borders).

When the Nordic centre launched, the Riksbank’s then-first deputy governor Cecilia Skingsley said the Swedish Parliament had agreed a five-year commitment of 30 million krona (about £2.5m) per year to host it, with three Riksbank staff to be assigned to its activities (and the other Nordic central banks each assigning one staff member). Skingsley left the Riksbank in August 2022 to join the BIS Innovation Hub as its overall head.

Skingsley, who was included in Global Government Fintech’s ’23 people to watch in 2023’, delivered a speech (pictured) titled ‘Walk the Talk: reflections from a public sector innovator’ in London at a BoE-hosted event last week.


Global Government Fintech’s Digital Currencies topic section

‘BIS Innovation Hub announces 2023 priorities’ – our article (9 February 2023) on the Innovation Hub’s plans for the year (improving payments systems and experimenting with CBDCs are among the priorities)

‘BIS Innovation Hub names Swedish central bank’s Skingsley as head’ – our news story (7 June 2022) on Cecilia Skingsley’s appointment

‘BIS Innovation Hub centres open in Sweden and UK’ – our news story (16 June 2021) on the opening of the Nordic centre (as well as a BoE-hosted centre)



The Global Government Fintech Lab 2023 will be held in Dublin on Thursday 18 May 2023. The Lab, our one-day event for senior public servants interested in exploring and implementing fintech solutions, is being organised in partnership with Ireland’s Department of Finance. The event, which is free to attend for all public servants, will feature keynote speeches, panels and breakout sessions focused on fintech-related opportunities and challenges for those working in central government, agencies and other public authorities