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While domestic payments have seen significant improvement in many jurisdictions in recent years, cross-border payments still face challenges such as high costs, low speed, limited access and insufficient transparency. The G20 has made it a priority to enhance cross-border payments a priority and, in response to this call for action, the BIS Innovation Hub is coordinating experiments on how this might be done.

Many central banks are exploring retail central bank digital currencies (rCBDCs). The requirements for interlinking these (domestic) rCBDC systems to support cross-border payments should be considered at the outset so that cross-border payments can be enabled when appropriate.

Project Icebreaker explores a specific way to interlink rCBDC systems (the hub-and-spoke solution) with several additional features that would allow the Icebreaker model to be readily scaled up. In addition, these features would promote simplicity and interoperability, reduce settlement risk, and foster competition and transparency for cross-border rCBDC payments.

Settlement risk and speed. In the Icebreaker model, a cross-border transaction is broken up into two domestic payments, one in each domestic system. An rCBDC therefore never leaves its own domestic system. This is because foreign exchange (FX) providers buy one currency in one system and sell the other currency in the other system. Settlement is via a coordinated payment-versus-payment (PvP) arrangement using Hash Time Locked Contracts (HTLC), going a long way towards eliminating counterparty risk in the FX transaction.

Competition and transparency. FX providers submit FX rates to the Icebreaker hub, which selects the best rate to be presented to the payer for each payment request. This lets the payer access competitive FX rates independently of the PSP providing the end user with a digital rCBDC-supporting wallet. Additionally, the dependency on liquidity in the desired bilateral currency pair is mitigated by automated use of bridge currencies.

Interoperability and scalability. The number of connections between rCBDC systems are kept to a minimum by the hub-and-spoke approach. The Icebreaker hub only routes payment messages and does not act upon them. The only information it acts upon is the data from FX providers, which are used when identifying and selecting the best FX rates for the payer.

The Icebreaker model makes a minimal set of technical requirements about the rCBDC systems that connect to it. Project Icebreaker shows that central banks can have almost full autonomy when designing their domestic rCBDC system while still being able to participate in a formalised interlinking arrangement to enable cross-border payments.