Banking News

Singapore, Canadian central banks use blockchain for cross border payments

central bank digital currencies

Today the Monetary Authority of Singapore (MAS) announced it has conducted a successful experiment for cross border and cross-currency payments using Central Bank Digital Currencies. It’s part of the latest iteration of its Central Bank Digital Currency (CBDC) experiments, Project Ubin. The Bank of Canada has been working with Accenture on Project Jasper on R3’s Corda, and MAS was assisted by JP Morgan using Quorum for the Jasper-Ubin project.

The purpose of the test is to see whether distributed ledger technology (DLT) and CBDCs can make cross border payments cheaper, faster and safer.

The experiment involved connecting the two separate domestic payment networks running on different technologies. Hashed Time-Locked Contracts (HTLC) were used to enable Payment versus Payment (PvP) without a trusted third party as an intermediary. Typically the likes of CLS are used as settlement services to reduce counterparty risk because conventionally settlement is not instant.

In essence HLTC prevents the money for the transaction being used elsewhere until the transaction completes or fails.

With previous tests, both countries have shared detailed findings, and have done so again by publishing a report with findings from the latest experiment and recommendations. In the report MAS stated that “whether we will eventually use blockchain technology for highvalue cross-border payments remains to be seen.”

The report highlights a number of outstanding questions. These include:

  • How would such a system behaves at scale?
  • What are the complications that will arise with a large number of jurisdictions?
  • How should such a system be governed, for example in updates to the protocol?
  • Are there regulatory or legal aspects to be considered?
  • Can HLTC be used to integrate with non-DLT based Real Time Gross Settlement (RTGS) systems?
  • What problems are also solved using this method (e.g. transparency)?

“The world of cross-border payments is complicated and expensive: our exploratory journey into the use of DLT to try to reduce some of the costs and improve traceability of these payments has yielded many lessons,” said Scott Hendry, Bank of Canada Senior Special Director, Financial Technology. “The importance of international cooperation through projects such as this one cannot be underestimated. Only through continued collaboration and fundamental research will it be possible for this technology to mature and for policy-makers to fully understand its potential.”

“Project Jasper and Project Ubin have built on previous innovations in the payments area to demonstrate that cross-border payment and settlement can be made simpler and more efficient,” said Sopnendu Mohanty, Chief FinTech Officer, MAS. “Together these projects have addressed many technical questions and brought the technology to a higher level of maturity. The next wave of central bank blockchain projects can make further progress by bringing technology exploration together with policy questions about the future of cross-border payments.”

Update: the article has added details including HLTC and outstanding questions