Moody’s Report: Cross-Border CBDC transactions may affect banks’ commission

Moody’s Investors Service latest report warned financial institutions that the widespread adoption of CBDCs may cause credit-negative for banks in lieu of lowered fees and commissions. Furthermore, banks with active foreign currency payments, clearing, and remittance services will bore the burn of losses according to Moody’s credit outlook report.

This month, the Bank of International Settlements (BIS) began its first round of trials for Cross-Border CBDC settlements, in collaboration with the central banks of Singapore, Malaysia, Australia, and South Africa. This BIS and central banks’ collaboration project is called Dunbar. The project is focused on building a platform that allows settlement in multiple CBDCs. The bank’s aim is to facilitate faster cross-border payments and settlements between financial institutions. Furthermore, the banks will cut costs and improve security through Dunbar.

“It is uncertain if the platform prototypes developed under the Dunbar project will be adopted by other central banks. However, the BIS expects that the results of this project will guide the development of global and regional platforms for more efficient cross-border payments,” stated the Moody’s report.

At the beginning of 2021, the central banks of Singapore and France had already been successful in testing their dual-CBDC cross-border transactions.

Cross-Border CBDC Adoption may cost the banks multi-billion-dollar figures

Moody’s report also emphasized that revenue generation for banks from cross-border is massive and that the Dunbar project could hamper the former profit margins. According to the transaction figures from the consultancy firm McKinsey, banks generated about $230 billion in revenue from cross-border transactions in 2019, globally.

Additionally, banks also earned about $60 billion in revenue in consumer business in 2019 for cross-border transactions such as remittances, where the banks charge hefty fees. Routinely, banks may charge up to 6.4 percent on outward remittances, based on World Bank data, with Nigerian, South African, and Thai banks charging some of the highest fees globally. These are the fees that will be effected upon the wider adoption of CBDCs.

“Banks in Asia-Pacific made up about $100 billion of this amount, the largest share globally, with most revenue coming from commercial transactions such as bank-to-bank,” Moody’s said.


Share this post:

Post comment

Your email address will not be published. Required fields are marked *