The preferred model of CBDC usage in cross-border finance will facilitate trade and capital flows, and by proxy, economic integration with respective power blocs. Therefore, it matters which cross-border CBDC template becomes most widely adopted, and which countries choose the respective template.

In this paper, we focus exclusively on the cross-border element of the CBDC design, as well as the extent to which chosen CBDC models promote alternative payment networks, facilitate cross-border capital flows and lower barriers to accessing other countries’ financial assets. With this perspective, we examined the geopolitical implications of CBDCs and found that the management of cross-border CBDC has the potential to affect standard measures of countries’ positions in the global political, economic and financial order, and therefore is geopolitically significant.

In detail, we arrived at the following three conclusions:

• Cross-border CBDCs are likely to promote more global financial fragmentation. It is unlikely that a world run on CBDCs would be globally more seamless than today’s financial architecture.
• Great power competition (e.g., United States-China) will help frame countries’ preferences for the particular model of cross-border CBDC access and exchange.
• The most operationally successful cross-border mechanism — as measured by reducing trading costs, raising efficiencies, ensuring transaction security and regulatory compliance — will invariably help drive capital flows.
  

At a minimum, this will have implications for the use of trading currencies, and presumably reduce global usage of the US dollar. The bigger de-dollarization question relies on whether cross-border CBDCs facilitate debt issuance and reserve asset management beyond today’s options, a feature that existing cross-border CBDCs do not yet offer.