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Central banks of Hong Kong and Thailand complete DLT trial for cross-border funds transfer

Thu, 23 Jan 2020, 05:01 am UTC

The Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BOT) have published a report on the outcomes of a joint Central Bank Digital Currency (CBDC) research project.

Called Project Inthanon-LionRock, the project was undertaken by the two authorities to look into the application of CBDC to cross-border payments. It was a follow-up to a Memorandum of Understanding signed between the HKMA and the BOT last May.

For the study, the partners developed a THB-HKD cross-border corridor network prototype that acted as a bridge between the Inthanon and the LionRock networks – distributed ledger technology (DLT)-based domestic wholesale payment network models of Thailand and Hong Kong, respectively.

The Corda-based corridor network allowed participating banks in the two countries to conduct funds transfers via CBDC tokens on a peer-to-peer basis, which helped to reduce settlement layers. They leveraged smart contracts to enhance the funds transfer process to enable a real-time and atomic payment-versus-payment (PvP) mechanism.

“Our joint research project with the Bank of Thailand marks an important first step to solve the pain points of low efficiency and high costs in traditional cross-border payments,” Edmond Lau, Senior Executive Director of the HKMA, said. “With the use of blockchain technology, the innovative and unique solution not only addresses different technical issues in practical applications but also offers good references to the central banking community on the use of Central Bank Digital Currency.”

Launched in Sept. 2019, the project was completed in Dec. 2019 and a distributed ledger technology-based proof-of-concept (PoC) prototype was developed in collaboration with 10 participating banks from both countries.

Participating banks

In the joint report detailing the outcome, the central banks revealed the banks that participated in the project from both the countries.

Thai participants include Bangkok Bank, Krung Thai Bank, Bank of Ayudhya, Kasikornbank, Siam Commercial Bank, Thanachart Bank, Standard Chartered Bank (Thai), and The Hongkong and Shanghai Banking Corporation Limited (Thai), while Hong Kong participants include The Hongkong and Shanghai Banking Corporation Limited (Hong Kong) and ZA Bank Limited. R3 was involved in the project as a technology partner R3.

Project outcome

Based on the PoC, the central banks said that the use of DLT can enhance the efficiency of the cross-border fund transfer process by enabling real-time transactions without intermediaries or settlement layers. It also enhances liquidity efficiency and allows to comply better with regulations and improve reporting ability.

The two authorities have agreed to proceed with further joint research work in relevant areas, including exploring business cases and connections to other platforms, involving the participation of banks and other relevant parties in cross-border funds transfer trials.

“Some challenges, namely legal and regulations, operational issues, and technical limitations may need to be further explored in the next stage of the project,” the report said.

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