MAS and Bank of Canada have been collaborating in the use of distributed ledger technology (blockchain) and central bank digital currencies to make the cross-border payment process cheaper and safer.
The results were linked up to their respective experimental domestic payment networks, named Project Jasper (Canada) and Project Ubin (Singapore), which are built on two different blockchain platforms. The project teams used a technique called Hashed Time-Locked Contracts (HTLC) to connect the two networks and allow Payment versus Payment (PvP) settlement.
PvP settlement is a process whereby a foreign currency is only traded if/when the transfer of another currency also takes place.
Scott Hendry, Bank of Canada Senior Special Director, Financial Technology explained the experiment as such:
“The world of cross-border payments is complicated and expensive: our exploratory journey into the use of Distributed Ledger Technology to try to reduce some of the costs and improve traceability of these payments has yielded many lessons. 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,” he said.
The Jasper-Ubin project was carried out in partnership with Accenture and J.P. Morgan.
The Bank of Canada and MAS have jointly published a report that proposes different design options for cross-border settlement systems.
The report further suggests areas of research in blockchain interconnectivity mechanisms and alternative network models. This represents opportunities for further collaboration among central banks, financial institutions, and fintech firms.
“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,” said Sopnendu Mohanty, Chief FinTech Officer, MAS.
It is said that this experiment was the first such trial between two central banks with potential to increase efficiencies and reduce risks for cross-border payments.