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The Bank of Canada (BoC) and the Monetary Authority of Singapore (MAS) have successfully completed a distributed ledger technology (DLT)-based trial on cross-border and cross-currency payments using central bank digital currencies (CBDCs).
With its heavy reliance on correspondent banking network, the existing cross-border payments are often slow and costly and subject to counterparty risk, inefficient liquidity management, and cumbersome reconciliation.
To address these challenges, the two central banking authorities trialed DLT and CBDCs with the objective of increasing efficiencies and reducing risks for cross-border payments.
The BoC and the MAS linked their respective experimental domestic payment networks – Project Jasper and Project Ubin – built on two different DLT platforms. Using “Hashed Time-Locked Contracts”(or HTLC) technique, they connected the two networks and enabled Payment versus Payment (PvP) settlement without the need for a trusted third party to act as an intermediary.
HTLC is a technique that uses smart contracts to synchronize all the actions making up a transaction so that either they all happen, or none happens.
The central banks have jointly published a report, titled “Jasper-Ubin Design Paper: Enabling Cross-Border High Value Transfer Using Distributed Ledger Technologies,” which describes how the Jasper and Ubin prototype networks were able to interoperate, allowing for cross-border payments to be settled on CBDCs, which in turn enables greater efficiencies and reduces risks. The report states:
“The team successfully demonstrated a cross-border, cross-currency, cross-platform atomic transaction without the need for a third party that is trusted by both jurisdictions. In our tests, no other action would proceed if any action fails, thus ensuring the end to end consistency of a transaction.”
According to the official release, the Jasper-Ubin project was carried out in partnership with Accenture and J.P. Morgan, who supported the development of the Canadian network on Corda, and the Singapore network on Quorum, respectively.
“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,” Sopnendu Mohanty, Chief FinTech Officer, MAS, said.
“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.”
