TOKYO — The APEC Business Advisory Council (ABAC), the private sector advisory of the APEC leaders, will be pushing for “interoperability” of central bank digital currencies (CBDCs) across all the 21-member economies to facilitate wholesale settlements or big financial transactions without having to go through the US payment system.
Julius Caesar Parrenas, senior adviser ABAC Finance Task Force
Julius Caesar Parrenas, senior adviser of the ABAC Finance Task Force (FTF) which met here to finalize their recommendations for the ABAC III meeting to be held in Cebu City from July 27 to 30, 2023, said that the FTF recommendations will form part of the other recommendations to the APEC Ministers Meeting in November this year in San Francisco and will in turn be elevated to the APEC Leaders meeting thereafter also in San Francisco, US.
Development of interoperable open data systems within the APEC region is one of the priority recommendations of the FTF, said Parrenas.
Parrenas explained that the interoperability of CBDCs will solve many of Asian countries’ problem: the inefficient financial settlement.
Under the current system, a Philippine company’s settlement to a Thailand company will not go directly to Bangkok, but it will have to go through the US correspondent bank within the US payment system because everything has to go through the US dollar before it can be converted into the local Thai currency. That takes time, especially with the differences in time zones.
By making CBDCs wholesale “interoperable”, this will skip the “SWIFT” system and enable direct payment without having to go through the US payment system, making the settlement “cheaper, faster and less complicated.”
Since APEC CBDCs are not interoperable or not interconnected with other CBDCs, Parrenas said that APEC member countries may use different technologies, such as blockchain or the traditional RTGS (real time gross settlement), as long as they are interoperable with other CBDCs in the region.
There are already multiple CBDC initiatives in the APEC region. The most advanced is the project “mBridge” among Hong Kong, Thailand, China and UAE. There is also another project called Project Dunbar led by Singapore.
The central banks of the Philippines, Indonesia and Malaysia are also exploring CBDCs on their own. But these CBDCs are being done separately.
There is also a lot of pressure for ASEAN, which has a very big ambition for regional integration.
“What we're trying to do is to propose certain common principles that will help them develop the opposing central bank digital currencies in a way that will become interoperable in the future,” said Parenas.
Meanwhile, Parrenas said that the US is now participating more actively in the CBDCs interoperability proposal.
“There's no problem really of the US side that of using digital currencies, or we'll be developing this one. The only concern is security,” said Parrenas.
Different member countries such as China, Russia, among others, may have their own take in the subject matter, but Parrenas stressed that from the ABAC perspective, “what we want is interoperability of CBDCs across all the member economies.”
According to Parrenas, even the US agreed that these CBDCs should not be developed in a way that fragments the region, but should make it more efficient for the region to operate as an integrated economy.
On the US concern over security of transactions, including addressing issues of money laundering and terrorism financing, Parrenas said that ABAC will propose to the APEC ministers to craft its statement that would be acceptable to all the APEC member economies.
APEC ministers should ensure that “CBDCs should be in alignment with each economy's commitments, international commitments to prevent the use of financial institutions for illicit purposes, including, money laundering or terrorist financing,” he said.
The US has started having a lot of interest in this project after the outbreak of the Russian war in Ukraine, because, if CBDCs no longer go through the US payment systems and outside of the Swift framework, there could be a potential that it could be used to go around sanctions.
Nonetheless, American banks that are operating in Asia are also very interested in having a more efficient Payment and Settlement Systems within Asia.
With interoperable CBDCs, these American banks don't have to go through the US payment systems anymore in order to finance transactions within Asia. “As far as business is concerned, they consider it very good because because of the efficiency,” he noted.