The Bank of Canada and the Monetary Authority of Singapore (MAS) have used distributed ledger technology to send each other central bank digital currencies (CBDCs).
The two central banks say that cross-border payments are slow and costly, relying on a correspondent banking network that is subject to counterparty risk, inefficient liquidity management and cumbersome reconciliation.
With both parties already experimenting separately with their own DLT-based CBDCs (Project Jasper in Canada and Project Ubin in Singapore), they decided to join forces to see if they could tap the technology to make cross-border payments cheaper, faster and safer.
Scott Hendry, senior special director, financial technology, Bank of Canada, says: "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."
The teams used a technique called Hashed Time-Locked Contracts to connect their two networks and allow Payment versus Payment settlement without the need for a trusted third party to act as an intermediary.
The Jasper-Ubin project was carried out in partnership with Accenture and JP Morgan, who supported the development of the Canadian network on Corda, and the Singapore network on Quorum, respectively.
With the experiment deemed a success, the partners have published a report outlining different design options for cross-border settlement systems and offering suggestions for new areas of research to push the ideas forward.
Sopnendu Mohanty, chief fintech officer, MAS, says: "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. 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. It is challenging work, and we welcome other central banks to join us in this global collaboration, to bring benefit to consumers, businesses and the broader financial industry.”