Cross-border remittances play an important role in the global economy, enabling individuals to transfer money internationally to support families, businesses, and communities. However, traditional international payment systems can involve high transaction costs, settlement delays, limited transparency, and complex networks of financial intermediaries.
The Digital Dollar Project’s Retail Cross-Border Remittance Payments report explores how central bank digital currencies (CBDCs) and distributed ledger technology (DLT) could improve the speed, efficiency, and accessibility of international money transfers.
Published in August 2023, the report presents findings from a pilot study conducted by Western Union and BDO Unibank in partnership with the Digital Dollar Project and Accenture. The study examined how a simulated U.S. digital dollar and Philippine peso CBDC could facilitate retail remittances between the United States and the Philippines.
This overview highlights the pilot’s objectives, technical approach, findings, and policy considerations, providing insights into the potential role of CBDCs in modernizing cross-border payment infrastructure.
Why Cross-Border Remittance Payments Need Modernization
International remittances provide an important financial lifeline for millions of individuals and families, particularly in emerging economies where money received from abroad contributes significantly to household income.
Despite their importance, cross-border payments often depend on fragmented financial infrastructure involving multiple intermediaries, correspondent banks, foreign exchange providers, and payment networks.
These arrangements can introduce transaction costs, settlement delays, liquidity requirements, and limited visibility into payment status.
The report highlights the significance of the U.S.–Philippines remittance corridor. According to figures cited in the publication, the Philippines received approximately $36 billion in remittances during 2022, representing around 8.9% of its GDP.
The research examines how emerging digital currency technologies could address existing inefficiencies while maintaining the security, regulatory compliance, and accessibility required for international money transfers.
Exploring CBDCs Through the U.S.–Philippines Remittance Pilot
The pilot study investigated whether a tokenized U.S. dollar and Philippine peso CBDC could support more efficient retail cross-border payments.
Conducted within a simulated environment, the experiment used a permissioned distributed ledger network to demonstrate how central bank digital currencies might operate across financial institutions and jurisdictions.
The study focused on two principal processes:
- CBDC Issuance and Distribution: Simulating how central banks could issue digital currencies to regulated financial institutions and how these currencies could become available through customer digital wallets.
- Peer-to-Peer Remittance Payments: Demonstrating the transfer of value between a Western Union customer in the United States and a BDO Unibank customer in the Philippines using tokenized digital currencies.
The pilot incorporated a foreign exchange process allowing simulated digital dollars to be exchanged for Philippine peso CBDC.
Its architecture reflected the Digital Dollar Project’s proposed two-tier distribution model, preserving the role of commercial banks and regulated payment intermediaries.
Rather than testing live customer transactions, the experiment established a technical foundation for evaluating how retail CBDCs could support future cross-border remittance services.
Key Findings: Faster Settlement, Reduced Risk, and Improved Efficiency
The pilot demonstrated several potential benefits of using CBDCs and distributed ledger technology for international remittances.
One significant finding was the ability to settle a simulated peer-to-peer payment in less than ten seconds, illustrating how tokenized currencies could improve settlement efficiency.
The report identifies four principal benefits:
- Reduced Risk: Atomic settlement allows different components of a transaction to complete together, helping reduce counterparty and credit risks.
- Optimized Cost: Combining the transfer of payment information and value could reduce reliance on pre-funded accounts and improve liquidity management.
- Enhanced Customer Experience: Digital wallets and faster settlement could improve accessibility, reduce failed transactions, and support more efficient payment services.
- Improved Transaction Visibility: A shared, permissioned ledger could provide financial institutions and customers with greater visibility into payment progress and confirmation.
The pilot also explored payment-versus-payment (PvP) settlement, where the transfer of one currency occurs only when the corresponding transfer of another currency is completed.
While the experiment demonstrated technical possibilities, further research would be required to establish the actual cost savings and operational benefits of CBDC-based remittances in live financial environments.
Financial Inclusion and the Role of Payment Intermediaries
Financial inclusion is an important consideration within the report, particularly for individuals who lack access to traditional banking services.
Cross-border remittance providers frequently serve unbanked and underbanked customers who depend on cash-based services or alternative payment channels.
The pilot explored how digital wallets and tokenized central bank money could potentially improve access to international payment services.
However, the research emphasizes that digital currency innovation should complement rather than displace existing financial intermediaries.
Western Union, BDO Unibank, and other regulated providers would continue to play important roles in customer onboarding, currency exchange, compliance, and payment processing.
The report also recognizes the importance of preserving cash-based payment options and addressing barriers relating to identity verification, financial literacy, and access to digital services.
These considerations suggest that improving financial inclusion would require more than introducing new payment technologies.
Regulatory and Policy Considerations for Cross-Border CBDCs
The development of interoperable CBDC networks raises important questions about financial regulation, monetary policy, privacy, and international cooperation.
The report examines policy considerations associated with allowing individuals and financial institutions to access central bank money for cross-border transactions.
One area involves the potential for regulated financial institutions to hold and exchange foreign CBDCs, which could have implications for monetary policy and existing banking arrangements.
The study also explores the role of foreign exchange liquidity providers within distributed financial networks and the regulatory controls needed to support secure currency transactions.
Although privacy was not examined in detail during the pilot, the report identifies data protection and transaction confidentiality as important requirements for future CBDC research.
It emphasizes the need for appropriate regulatory frameworks and collaboration between central banks, financial institutions, technology providers, and policymakers.
Future Research Priorities for CBDC Remittance Networks
Building on the pilot’s findings, the Digital Dollar Project identifies three areas requiring further experimentation and development.
1. Inclusive Identity Attestation Models
Exploring digital identity and customer verification frameworks that could support regulatory compliance while improving access for individuals without conventional identification documents.
2. Privacy for Cross-Border Transactions
Developing approaches to protecting sensitive financial information and establishing appropriate standards for transaction visibility across institutions and jurisdictions.
3. Multi-Network Cross-Border Interoperability
Investigating how CBDCs operating on separate networks could communicate and transfer value securely, rather than relying on a single shared infrastructure.
The research also contributes to the refinement of the Digital Dollar Project’s Champion Model, particularly its emphasis on regulated financial intermediaries and technology decisions guided by functional requirements.
Through its simulated remittance pilot, Retail Cross-Border Remittance Payments provides evidence of how CBDCs could contribute to faster and more efficient international payments.
Rather than advocating for a particular CBDC implementation, the report establishes a foundation for continued experimentation, public-private collaboration, and discussion about the future of cross-border remittances and digital currency infrastructure.
