As Central Bank Digital Currencies (CBDCs) race in the market, I have spent a lot of time thinking about what will really make them successful. While the idea of digital currencies is exciting in itself, one aspect I believe is absolutely critical for their future is interoperability, the ability for different CBDCs, across countries and platforms, to work together seamlessly.
Here’s why I believe interoperability is the game-changer that will unlock the true power of CBDCs.
1. Making Cross-Border Payments Effortless
We have all experienced how slow and costly cross-border payments can be. Between fees, conversion rates, and delays, the current system just is not efficient. If different CBDCs can interact smoothly with one another, we can change that narrative. Imagine being able to send money to someone in another country in real time, without the need for expensive intermediaries like correspondent banks. It is not just about convenience—it is about breaking down the barriers that currently exist in international finance.
2. Creating Real Financial Inclusion
For me, one of the most exciting promises of CBDCs is their potential to reach the unbanked and underbanked populations. But there is a catch—without interoperability, we risk creating digital islands where CBDCs are only useful within specific countries. To truly drive financial inclusion on a global scale, CBDCs need to be interoperable, allowing people, no matter where they are, to access the benefits of digital currency in a connected global economy.
3. Fuelling Global Trade and Economic Growth
Interoperability is also crucial when we think about international trade. Today, companies face a ton of challenges dealing with different currencies and fluctuating exchange rates. A connected network of CBDCs could solve that. With seamless transactions between different digital currencies, businesses could trade with ease, opens new opportunities for growth and collaboration across borders.
4. Driving Innovation in the Financial Space
One thing I have learned is that innovation thrives when systems are open and collaborative. An interoperable CBDC network could allow for the creation of innovative new services that work across platforms. Imagine being able to use a single wallet for different CBDCs, or apps that allow you to transfer between currencies instantly. Interoperability will push developers to think bigger, bringing more value to both consumers and businesses alike.
5. Maintaining Global Financial Stability
I also see interoperability as essential for maintaining stability in the global financial system. If CBDCs operate in silos, we risk creating fragmented systems that could lead to instability. But with interoperability, we can build a more connected and resilient financial ecosystem, where regulatory cooperation is easier and financial risks are more manageable.
As we move forward with CBDCs, it is clear to me that they cannot exist in isolation. The real power of digital currencies lies in their ability to interact and operate across multiple networks, platforms and geographies, this is where interoperability comes in the picture. It is not just a functionality but also a foundational necessity to harness the potential of CBDCs and enable them to truly transform the global economy.
In the recent times, several emerging blockchain ecosystem builders are developing cross-chain systems to enable interoperability. A US-based organization, Kalp Decentra Foundation, a.k.a. KALP has developed the Kalp Bridge, which has successfully bridged various permissioned and permissionless chains, including Avalanche and Binance Smart Chain for seamless transfer of tokens, facilitating faster and effective inter-chain transactions, at a lesser cost. In a recent news article, their collaboration with BIMTECH highlighted an institutional CBDC project allowing students, faculty and admins to use, distribute, mint and burn respectively, their institutional currency, promoting students to get familiar with this technology of the future.
I surely believe that interoperability is a bankable technology, if we get interoperability right, we will be taking a huge step towards a more inclusive, efficient, and innovative financial future. It is not just about creating digital currencies—it is about building a digital economy that works for everyone and everywhere.
