How CBDCs Are Changing Cross-Border Payments

Imagine sending money to a family member in another country and having it arrive in seconds-not days. No middlemen, no hidden fees, no confusing exchange rates. That’s the promise of CBDCs and cross-border payments. Right now, sending $200 from the U.S. to the Philippines can cost you $12.84 in fees alone. That’s not a glitch-it’s the system. Traditional banks rely on layers of intermediaries, each taking a cut and adding days to the process. CBDCs, or central bank digital currencies, are built to fix that. And they’re not just theory anymore. Real pilots are live, with billions in simulated transactions already settled in under 15 seconds.

Why Cross-Border Payments Are Broken

Right now, cross-border payments run on a 50-year-old system called correspondent banking. Think of it like a game of telephone: your bank sends money to a partner bank in the recipient’s country, which then passes it to another bank, and so on. Each step adds cost, delay, and risk. On average, it takes 1 to 5 business days for the money to land. Fees? Around 6.42% of the transaction value, according to World Bank data from early 2023. For the $702 billion in global remittances sent in 2022, that means over $45 billion vanishes in fees alone.

It’s worse for people in developing countries. Many don’t have bank accounts. They rely on cash agents, money transfer services, or informal networks. Even when they do have accounts, the system doesn’t work for them. It’s designed for big institutions, not individuals sending $50 to their parents.

What Exactly Is a CBDC?

A CBDC is digital cash issued by a country’s central bank-like the Federal Reserve or the Reserve Bank of New Zealand-but in electronic form. It’s not Bitcoin. It’s not stablecoins. It’s the same money you hold in your bank account, just digitized and backed by the full faith of the government. There are two main types: retail and wholesale.

Retail CBDCs are for everyone. China’s e-CNY is the biggest example. People use it like a mobile wallet-scan, pay, done. But retail CBDCs face big hurdles for cross-border use. Many countries, including China, restrict capital flows. You can’t just send e-CNY overseas without approval.

Wholesale CBDCs are for banks. They’re designed for institutions moving large sums between countries. This is where the real innovation is happening. Projects like mBridge and Project Aber focus on connecting central banks directly, cutting out the middlemen. No more five intermediaries. No more waiting. Just direct, instant settlement.

The mBridge Project: A Real-World Test

The most advanced cross-border CBDC project today is mBridge, led by the Bank for International Settlements (BIS) and partners including the central banks of Hong Kong, Thailand, the UAE, and China. In 2022, they ran a minimum viable product that simulated over $22 million in cross-border payments. The results? Transactions settled in 10 to 15 seconds. Traditional systems? 1 to 5 days.

Here’s how it works: Instead of each country running its own digital currency system, they built a shared platform. Banks in Hong Kong can send digital yuan to banks in Thailand, and the system handles the currency conversion automatically. Liquidity is pooled, so banks don’t need to hold huge amounts of foreign currency. Costs dropped by 40-60% compared to traditional methods.

By September 2023, mBridge moved from simulation to live pilot. Fifteen banks are now executing real transactions. In April 2024, 10 more central banks joined-including Australia, Singapore, and Malaysia. That’s not a small experiment anymore. It’s a network covering 25% of global trade flows.

Other Key Projects and Corridors

mBridge isn’t alone. Project Aber, a joint effort between Saudi Arabia and the UAE, settled cross-border payments in under 30 seconds. The DR-THB/DR-HKD corridor between Thailand and Hong Kong uses digital tokens to represent Thai baht and Hong Kong dollars. The system, launched in 2020 after 18 months of legal and technical work, handles FX settlement in real time.

The Eurosystem is testing a digital euro for cross-border use within the EU. Early estimates suggest it could handle 30-40% of intra-EU payments within five years, potentially replacing $120-160 billion in current correspondent banking flows.

Even the Bahamas, with its Sand Dollar, and Jamaica, with JAM-DEX, are proving that small nations can leapfrog legacy systems. They’re not trying to compete with SWIFT-they’re building better tools for their own citizens.

The Big Challenges: Fragmentation, Law, and Trust

Despite the progress, CBDCs aren’t a magic fix. The biggest problem? No one agrees on how to make them talk to each other. Only 12% of central banks have formal cross-border cooperation agreements. That means you could have a digital dollar system in the U.S., a digital euro in Europe, and a digital yuan in China-all incompatible.

Legal frameworks are even messier. Out of 134 countries exploring CBDCs, only 37 have updated their payment laws to allow them. Identity verification is another hurdle. India uses Aadhaar. Singapore uses MyInfo. The U.S. wants KYC for transactions over $1,000. How do you make these systems work together? You don’t. Not yet.

Then there’s liquidity. In traditional systems, banks hold foreign currency reserves. In CBDC corridors, they need to pool liquidity across borders. That requires trust. Central banks have to share control. That’s hard when geopolitical tensions are high.

Who Wins? Who Loses?

The winners are clear: remittance senders, small businesses, and emerging economies. A family in Kenya sending money to relatives in Uganda could save $5 on a $100 transfer. A farmer in Vietnam selling goods to a buyer in Malaysia could get paid the same day, not wait for a bank to clear a wire.

But the losers? The middlemen. Correspondent banks, money transfer operators, and even SWIFT are feeling the pressure. SWIFT’s GPI initiative has already cut costs to 3.97% and increased same-day settlement to 78%. That’s closing the gap. CBDCs aren’t replacing SWIFT overnight-they’re forcing it to evolve.

There’s also a geopolitical risk. If the U.S., China, and the EU each build their own digital currency blocs, the global financial system could split. The IMF’s Kristalina Georgieva warned this could create "new barriers rather than bridges." The U.S. Federal Reserve fears CBDCs could boost the dollar’s dominance-but only if the U.S. leads the standards. If not, it could lose ground.

What’s Next? The Road to 2030

The G20 set a target: cut global remittance costs to 3% by 2030. CBDCs are the most promising tool to get there. The World Bank’s Digital Currency Network, launched in January 2024, is working on standardized legal templates for cross-border CBDC use. Pilots are expected in Africa and Southeast Asia by late 2024.

The IMF is pushing for a "Digital IMF"-a global framework to coordinate CBDC interoperability. Without it, we risk a patchwork of incompatible systems. With it, we could see real-time, low-cost payments between any two countries.

By 2027, CBDC solutions could capture 5-7% of the $156 billion cross-border payments market. That might sound small, but it’s enough to change the game. Once the infrastructure is in place, adoption will accelerate. Retail CBDCs may follow, once identity and privacy issues are solved.

Will CBDCs Replace Cash?

Not anytime soon. Cash still dominates in many parts of the world. CBDCs aren’t meant to kill cash-they’re meant to make digital payments faster, cheaper, and fairer. In countries with weak banking systems, CBDCs could be the first step toward financial inclusion. In advanced economies, they’re about efficiency.

The key is design. If CBDCs require too much ID, they’ll exclude the unbanked. If they’re too open, they’ll attract fraud. The best systems will balance speed, security, and access.

Final Thoughts

CBDCs for cross-border payments aren’t about replacing the dollar or the euro. They’re about fixing a broken system that’s been dragging us down for decades. The technology works. The pilots prove it. The cost savings are real. The question isn’t if CBDCs will change cross-border payments-it’s how fast we can make them work together.

The next five years will decide whether we build a global digital payment system that serves everyone-or one that only serves the powerful.