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A prototype of a multi-central bank digital currency (mCBDC) has shown that digital currencies and distributed ledger technology (DLT) could result in cheaper and safer cross-border payments, a new report has shown.
Whereas transactions take several days on average to go across borders, the international prototype platform for mCBDC settlements is able to complete international transfers and foreign exchange operations in seconds.
“The prototype is part of our effort to design CBDC technology,” said Benoît Cœuré, head of the Bank for International Settlements (BIS) Innovation Hub, who led the project.
“The project includes experimenting with use cases and trials, balanced with analysis of governance, policy and legal considerations with a focus on cross-border use.”
The cost of such operations to users can also be reduced by up to half, according to this report.
“Enabling faster and cheaper cross-border wholesale payments, including to jurisdictions that don't benefit from a vibrant correspondent banking system, would be positive for trade and economic development,” said Bénédicte Nolens, BIS Innovation Hub chief at the Hong Kong Centre, noting that the mBridge project “investigates these public good outcomes” through a new DLT payment infrastructure that sits at the cross-roads of participating central banks.
The prototype, called the mBridge project, is a collaboration between the BIS’ Innovation Hub and four central banks: the Hong Kong Monetary Authority; the Bank of Thailand; the Digital Currency Institute of the People's Bank of China; and the Central Bank of the United Arab Emirates.
The mBridge project builds upon the initial investigation by the central banks of Hong Kong and Thailand (Project Inthanon-LionRock), which first proved the viability of a common CBDC platform between two jurisdictions, by testing critical features such as transaction privacy, foreign exchange matching, monitoring and compliance.
The mBridge project will now concentrate on issues such as privacy and liquidity management. In addition, the BIS said, the project will “incorporate policy requirements and measures to ensure compliance with jurisdiction-specific regulations”, while also testing and investigating models of governance.
The mBridge project’s findings come in the same month as the BIS’ announcement that it is working with a group of central banks — the Reserve Bank of Australia, Bank Negara Malaysia, the Monetary Authority of Singapore, and the South African Reserve Bank — to test the use of CBDCs for international settlements.
Project Dunbar aims to develop prototypes of shared platforms on which cross-border transactions using multiple CBDCs take place. These platforms will allow financial institutions to transact directly with each other in the digital currencies that central banks have issued, eliminating the need for intermediaries and cutting the time and cost of transactions.
Its results, expected to be published in early 2022, will help central banks develop platforms for global and regional settlements in future.
The central banks will demonstrate technical prototypes of the shared platforms, which they will have developed in collaboration with technological firms, at the Singapore FinTech Festival in November.
