Curated for International Trade
Central Bank Digital Currencies (CBDCs) are digital representations of sovereign currency issued and regulated by a country’s central bank. CBDCs maintain state backing and legal tender status, unlike cryptocurrencies such as Bitcoin. As global commerce becomes increasingly digitalised, the introduction of CBDCs has deep implications for international business transactions, aligning with global trade.
The Bank for International Settlements (BIS) indicates that over 130 countries are exploring the idea of using CBDCs, and this is through projects ranging from conceptual research to pilot implementation (BIS, 2023).
This paper investigates how CBDCs might reshape cross-border financial operations, focusing on transaction efficiency, regulatory compliance, and geopolitical dynamics. However, this presents more immediate relevance to large-scale international trade and interbank settlements, resulting in Central Banks’ internal fiscal and monetary complexities.
According to Bordo and Levin (2017), CBDCs represent an evolution of monetary instruments that can enhance central bank effectiveness, particularly in enforcing monetary policy and improving payment systems. The conventional studies on international business transactions, emphasised by Kogut and Zander (1993), denoting the importance of institutional trust and transaction cost minimisation, areas where CBDCs might offer innovation and economic growth.
Recent scholars have focused on the architecture and synergism of CBDC systems. Auer, Haene and Holden (2021) argue that the design of cross-border CBDCs must balance legal clarity with technological compatibility to ensure it works effectively to achieve its outcomes.
The concept of multi-CBDC platforms, such as mBridge, a collaborative effort by the BIS Innovation Hub and central banks from China, Thailand, the UAE, and Hong Kong, has provided practical insight into these dynamics (BIS, 2022). This shows that central banks from respective countries can work cooperatively to ensure that the CBDC works. Another argument is that it can only work when projects are involved, but endorsing the currency for international trade can be bewildering.
CBDCs offer a direct settlement mechanism that could significantly reduce the fees associated with intermediary banks and correspondent networks. According to the World Bank (2021), global remittance fees average around 6.4%, disproportionately affecting small and medium-sized enterprises (SMEs) engaged in cross-border trade.
CBDCs have the potential to enable instant settlements through distributed ledger technologies (DLT), improving liquidity and operational agility for multinational corporations (Frost et al., 2020). CBDCs enhance the features of globalisation, and therefore ensure that trading transactions are carried out accurately to meet the deregulation of finance protocols.
CBDCs offer traceability and auditability, which can simplify compliance with anti-money laundering and counter-terrorism financing regulations. Retail CBDCs could embed Know Your Customer (KYC) data at the protocol level, improving regulatory oversight across jurisdictions in all countries that use the currency (Zamour, 2021).
One of the most pressing challenges for CBDCs in international trade is regulatory heterogeneity. As countries develop CBDCs with different technological standards and privacy rules, achieving interoperability remains complex (Ferrari, Mehl and Stracca, 2022). CBDCs create complexities as there is no policital structures to check the viability of both political and economic policies and prohibits monetary silos for respective countries.
International business transactions involving CBDCs may expose firms to foreign data laws and surveillance risks (Arner, Auer and Frost, 2020). This could lead to data breaches that could prevent international trade and also create reluctance among Western and Third World countries where economies are not compatible.
CBDCs may also become tools of geopolitical leverage. The Chinese digital yuan, for example, has been presented as a challenge to the dominance of the US dollar in global trade (Prasad, 2021), and the yuan is not a strong currency to be used to back the digital currency.
Launched by the BIS and several Asian and Middle Eastern central banks, Project mBridge explores the viability of a multi-CBDC platform for real-time cross-border transactions. Preliminary results indicate up to 50% reduction in transaction time and cost (BIS, 2022).
The European Central Bank (ECB) has commenced trials of a digital euro with cross-border functionality. The ECB aims to ensure that the digital euro complements existing SEPA systems while enabling secure inter-EU commerce (ECB, 2023).
International firms must prepare for a changing payments landscape. Treasury departments may need to integrate CBDC-compatible infrastructure, hedge against currency-specific CBDC volatility, and adapt to dynamic compliance requirements. Moreover, early adoption could provide a competitive advantage in accessing streamlined payment rails and preferred trade networks.
CBDCs have the potential to change the mechanisms of international business transactions by enhancing efficiency, transparency, and inclusiveness. However, these benefits will only materialise if supported by robust international cooperation, harmonised regulation, and resilient technological infrastructure.
Experimenting and implementing a digital currency in an international sphere can be challenging because multinational firms will not be willing to take the risks and given opportunities that they might not be able to capitalise on in the future. CBDCs are a good idea, but the currency needs to be backed by the International Monetary Fund (IMF) for this currency to work as it needs international regulatory systems to ensure that countries are using it correctly.
References
Arner, D.W., Auer, R. and Frost, J., 2020. Stablecoins: risks, potential and regulation. Bank for International Settlements. Available at: https://www.bis.org/publ/bisbull21.pdf [Accessed 10 May 2025].
Auer, R., Haene, P. and Holden, H., 2021. Multi-CBDC arrangements and the future of cross-border payments. BIS Papers No. 115. Basel: Bank for International Settlements.
Bank for International Settlements (BIS), 2022. Project mBridge: Connecting economies through CBDC. BIS Innovation Hub. Available at: https://www.bis.org/publ/othp59.pdf [Accessed 10 May 2025].
Bank for International Settlements (BIS), 2023. Gaining momentum — Results of the 2022 BIS survey on central bank digital currencies. BIS Papers No. 136. Available at: https://www.bis.org/publ/bppdf/bispap136.pdf [Accessed 10 May 2025].
Bordo, M.D. and Levin, A.T., 2017. Central bank digital currency and the future of monetary policy. NBER Working Paper No. 23711. Cambridge, MA: National Bureau of Economic Research.
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Ferrari, M., Mehl, A. and Stracca, L., 2022. Central bank digital currency: a cross-border perspective. Journal of Financial Stability, 58, pp.1-14.
Frost, J., Gambacorta, L., Huang, Y., Shin, H.S. and Zbinden, P., 2020. BigTech and the changing structure of financial intermediation. Economic Policy, 35(102), pp.291–326.
Kogut, B. and Zander, U., 1993. Knowledge of the firm and the evolutionary theory of the multinational corporation. Journal of International Business Studies, 24(4), pp.625-645.
Prasad, E.S., 2021. The Future of Money: How the Digital Revolution is Transforming Currencies and Finance. Harvard University Press.
World Bank, 2021. Remittance Prices Worldwide, Issue 39. Available at: https://remittanceprices.worldbank.org [Accessed 10 May 2025].
Zamour, M., 2021. Designing a CBDC for the European Union. European Parliament Economic Governance Support Unit (EGOV). Available at: https://www.europarl.europa.eu [Accessed 10 May 2025].
