A solution in search of a problem

While the idea of a BRICS currency is a powerful negotiating tool in challenging dollar dominance, there are more long-term solutions

- K YATISH RAJAWAT

Direct exchanges between digital currencies, CBDCs cut down on the high conversion costs associated with traditional trade. The transparency inherent in CBDCs also simplifies compliance with regulations like anti-money laundering (AML) and know-your-customer (KYC) norms, reducing the risk of fraud, disputes, or delays.

Traditional cross-border payments incur transaction fees ranging between 5-7% of the transaction value. These costs arise from intermediary fees (like correspondent banks), currency conversion charges, and compliance expenses (AML/KYC). CBDCs can reduce these costs to as low as 1-2% by eliminating intermediary banks, enabling direct currency exchange between nations using interoperable CBDC platforms, and reducing delays and associated costs through real-time settlements.

For instance, the Bank for International Settlements (BIS) reports that integrating CBDCs could cut cross-border payment costs by up to 50-75%, depending on the system's adoption scale.