Today, the Monetary Authority of Singapore’s Chief Fintech Officer Sopnendu Mohanty, spoke about the state of wholesale central bank digital currencies (CBDC) in a webinar hosted by enterprise blockchain firm R3. Mohanty said that the technology issues are largely solved and the financial sector has distributed ledger technology (DLT) platforms ready to use a digital currency.
“What we’re missing is the decision of a central bank to issue a digital currency into the network,” said Mohanty. “I think it will take some time, but hopefully as soon as possible.”
There are numerous blockchain platforms either already in production or nearing production ranging from trade finance to stock transactions such as Switzerland’s SIX Digital Exchange (SDX) and the Australian Securities Exchange (ASX).
Mohanty noted that these platforms “need a compatible payment system. And that compatible payment system cannot be what we have today.” He explained that current systems only focus on the payment and have no link to the related securities transaction. Whereas “smart contracts bring it together making it much more secure and decentralized.”
Mohanty also declared: “No more experiments, because the path to production is very clear.” This follows the publication of the MAS Project Ubin stage five report on payments tests, which made the same point.
The MAS executive’s sense of urgency was palpable. He noted the tens of billions that China is already processing on its trade finance and supply chain blockchains. He didn’t mention one in his own back yard, Singapore’s trade finance platform dltledgers, which already claims to have reached the multi-billion mark.
“This is already production ready with transfers happening on the blockchain. Why are we lagging with putting in place a payment system which is compatible with this new way of doing things? That urgency has to be there,” said Mohanty.
Turning to Switzerland’s SDX, it was previously announced that the Swiss National Bank is trialing a CBDC for SDX securities settlement. The central bank’s representative Nino Landerer emphasized it was a proof of concept and there are two potential paths. One is to put the digital currency on chain, and the other is to integrate the DLT with the existing payment rails, the Real Time Gross Settlement (RTGS) system.
Switzerland is in a relatively unusual position of already having a highly efficient, liquid and lower counterparty risk securities settlement system. Since 1992, settlement in Switzerland has been via the SECOM system, which uses instant payments with the same pool of cash as the main interbank payments system (SIC). Hence, for the Swiss system, there aren’t the same gains to be made compared to other nations with two day securities settlement. “So the benchmark is quite high,” said the central bank’s Landerer.
There’s another unusual Swiss feature: SIX, the country’s main stock exchange, operates the SECOM payment system on behalf of the central bank, as pointed out by SIX’s Tim Grant, who leads the SDX platform. Hence SIX is able to do the payments integration work itself. Grant described the SIX Digital Exchange solution as “building in parallel to the existing infrastructure. We’re building a next generation, trading, issuance, settlement and custody platform.”
But the central bank’s Landerer outlined what appears to be a long path. He said any new architecture needs interoperability with existing payment systems such as the RTGS, with different DLT platforms and internationally. That requires significant coordination.
This coordination challenge was raised by Accenture’s CBDC lead John Velissarios. Proofs of concept involve relatively few people. When preparing a platform for production, the number of stakeholders is far higher. So the biggest challenge is not technical. It’s “getting everybody together to actually agree on what the next step is, agree what everybody’s role is going to be,” said Velissarios.
And the Accenture executive should know. He led Canada’s Project Jasper work; he runs the Accenture team in the European Central Bank’s EUROchain project, Sweden’s RiksBank CBDC work, and the Accenture team in the recently announced Banque de France trials.
Velissarios agreed with the interoperability requirements and divided them into both technical and functional. On the technical side, making tokens capable of transfer across different blockchain architectures is just one aspect being explored.
But MAS’ Mohanty believes that, for now, all that’s needed is a taxonomy between different parties or standards. “Focusing on interoperability can delay our (CBDC) discussions,” he said. “Get the taxonomy right, the rest will follow.”