Digital currencies are almost here, with China’s e-CNY possibly out of the block by the 2022 Beijing Winter Olympics. But among the many things we still don’t know about these new payment instruments is their use abroad: How useful will digital money in one country be in another? All we know is that it will be a direct claim on a central bank, like regular cash. But there the similarity ends. The money changers are ready to exchange – for a large sum – our banknotes for [foreign money]. However, if the money resides in a wallet on our smartphones, tourists may not be able to spend it abroad if merchants are not allowed to receive foreign digital currencies.

Commercial banks have solved this problem. By using intermediaries like Visa and PayPal, they made our claims acceptable as payments in other countries. But for monetary authorities to do so, each will need a way to verify the identity of 8 billion people. This is because, in theory, anyone on the planet can land in any country with purchasing power acquired abroad.

Unlike cash or cryptos like Bitcoin, digital currency issued by central banks will not be pure tokens. Either the issuing monetary authority or the private actors for which it is responsible will maintain debit and credit accounts. Accounts involve identities and, in an international context, questions arise about money laundering, terrorist financing, etc.

China’s digital yuan trials with foreign athletes next year will likely involve giving them e-CNYs to spend locally. It’s just marketing. It is when the Chinese try to use it abroad that the challenges of sharing identities across borders will become complex. Beijing wants to promote the currency as a global alternative to the US dollar. But what if the US Fed wants to access a database that would verify the identity of all Chinese visitors to the US, potentially tracking what they buy? Will Washington tolerate the same of a digital dollar?

There are three ways out of the deadlock, according to the Bank for International Settlements (BIS). The simplest solution may be for different payment authorities to improve the compatibility of their technical and regulatory standards. In addition, they can interconnect their systems and share certain interfaces, thus eliminating intermediaries. Finally, they can come together on a single platform for their independent digital currencies. Each of the three approaches “would require increasingly nested identification schemes, but in any case, identification would remain at the national level,” BIS said.

The third model, a jointly managed payment system supporting multiple central bank digital currencies, is the most promising from a user perspective. After the Hong Kong Monetary Authority began experimenting with the Bank of Thailand to develop a common platform, it was joined by the central banks of China and the United Arab Emirates. The project is now called m-CBDC Bridge. Even in such a highly cooperative setup, a unique identification system would not be necessary, according to BIS.

The United States and China are unlikely to agree to join their fashionable digital currencies, given their mutual mistrust. Then what ?

The pandemic may offer clues. My Hong Kong vaccination certificate is on my Apple Wallet, with the name and ID numbers partially obscured. It has a tamper-proof QR code, which can be read by immigration authorities. To achieve this, Apple and the health authority had to verify my identity through my phone number and unique Hong Kong ID. As long as other countries recognize Hong Kong electronic certificates, protected by phone face or fingerprint verification, they will be accepted for international travel.

A similar system could work for international payments with digital money. For a cup of coffee, it should be enough for a national authority to verify that you are who you say you are and that you have what you say you do: unspent money. As long as the country accepting foreign digital money is satisfied with the issuing authority’s anti-money laundering standards, nothing more is required. The Fed can credit the coffee wallet with FedCoin and the People’s Bank of China can debit e-CNY from yours, and the two can settle their accounts without saying anything more about you. Travelers would save money that way too.

Without this level of coordination, e-CNY, FedCoin, Britcoin and a digital euro will all remain trapped in silos, making them non-starters in a globalized world and paving the way for Diems, tokens. Synthesis from the private sector supported by reserves maintained in one or more official currencies. The growing popularity of cryptocurrencies is already a headache for central banks; they won’t want their legal tender lost to these so-called stablecoins. They will therefore cooperate, even if they do not cooperate.

Your country’s digital money may be more welcome in some places than others. But it will work everywhere.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services.

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