Central banks in Australia, Singapore, Malaysia and South Africa will conduct a cross border payments trial using different central bank digital currencies (CBDC) to assess if this allows transactions to be settled more cheaply and easily, the banks said on Thursday.

Many governments and central banks around the world are exploring the use of CBDCs, which are digital forms of existing currencies. Some, like China, are trialing retail-focused central bank digital currencies designed to replicate cash in circulation, while others are considering using so-called wholesale CBDCs to improve the internal workings of their financial systems.

Most projects are still in the early stages and are domestically focused, but developing global rules and frameworks for how central bank digital currencies can be used internationally is complicated technically, and potentially politically.

This latest project aims to develop prototype shared platforms for cross-border transactions using multiple central bank digital currencies, said the statement from the Reserve Bank of Australia, Bank Negara Malaysia, the Monetary Authority of Singapore, the South African Reserve Bank, and the Bank of International Settlement’s Innovation Hub, which is leading the scheme.

These platforms would enable financial institutions to transact directly with each other in CBDCs, which could eliminate the need for intermediaries and reduce the time and cost of transactions.

The initiative, which will also explore different technical, governance and operating designs, should publish its results in early 2022, the statement said.

“The multi-CBDC shared platform... has the potential to leapfrog the legacy payment arrangements and serve as a foundation for a more efficient international settlement platform,” Assistant Governor Fraziali Ismail, Bank Negara Malaysia said in the statement.

A separate BIS-led project exploring using CBDCs for cross border payments is also underway involving central banks from China, Hong Kong, Thailand and the UAE.

Meanwhile the Brazil’s economic outlook appears bleak unless the government adopts structural reforms to build confidence in the country’s financial health, Arminio Fraga, a former governor of the central bank, said on Wednesday. A growing fiscal deficit, lack of inclusive and sustainable growth and political unrest, together with the lingering impact of 2014’s recession, weigh on growth and investment, Fraga told the Reuters Global Markets Forum. Brazil’s growth rate is “mediocre... and highly volatile,” said Fraga, who led Banco Central do Brasil from 1999 to 2002.

“It goes beyond the pandemic and short-term cycles,” he added.

The economy stalled more than expected in the second quarter, which could spur downgrades to estimates of 2021 gross domestic product (GDP).

Fraga said pressure on the fiscal spending cap would only increase if priorities were not changed, especially as “accounting gimmicks” were behind some current tussles.

He saw a tax bill now being considered by Brazil’s Congress and which proposes a tax rate of 20 per cent on corporate profits and dividends, as one such vital reform.

Fraga, who is now co-CIO of Gavea Investimentos, believes other reforms, such as boosting spending on social security, subsidies and education could collectively raise Brazil’s annual growth rate to 4 per cent or more.

As the central bank eyes a series of rate hikes to pull inflation within its 2022 target, Fraga saw the situation as being not fully under control.

That is a dynamic seen in the Brazilian real, Fraga said, which he believed is undervalued.

Brazil is among the emerging markets that could suffer as the US Federal Reserve begins unwinding stimulus, but floating exchange rates and healthy financial markets should help cushion the blow, Fraga said.

“If (advanced economies’) real interest rates go into positive territory and commodities come down, Brazil will be hit, but that shouldn’t be enough to derail things completely,” he added. Chile’s Central Bank revised upwards its prediction for 2021 GDP growth to 10.5 per cent to 11.5 per cent from a previous estimate of 8.5 per cent to 9.5 per cent amid what it called the country’s “rapid recovery” from a recession caused by COVID-19.

The bank said it saw average inflation for 2021 at 4.2 per cent compared to the 3.9 per cent it predicted previously. On Tuesday the bank doubled the benchmark interest rate to 1.5 per cent.

It said in its quarterly IPOM economic report on Wednesday it would continue to withdraw monetary stimulus, with the rate returning to a neutral level by mid-2022.