The central banks of Singapore and Canada successfully used their blockchain networks to exchange digital currencies cheaper, faster and safer
The Bank of Canada and the Monetary Authority of Singapore (MAS) successfully completed an experiment in cross-border payments using cryptocurrencies, according to what MAS explained recently in a press release.
Currently, cross-border payments are quite slow and expensive. Also, it depends on a network of correspondents, which could suffer risks as well as inefficient liquidity. For that reason, there has been a growing number of central banks that have become interested in blockchain technology and in the general ledger.
In order to conduct these transactions successfully, the Bank of Canada and the Monetary Authority of Singapore proposed using the Distributed Ledger Technology (DLT) and digital currencies of the central bank. The main objective is to make these processes more economical, faster and safer.
As part of the experiment, the Monetary Authority of Singapore sent funds to the Bank of Canada without using a third party. The two banks successfully connected their respective national experimental payment networks, which are the Jasper Project of the MAS and the Ubin Project of the Bank of Canada, based on two different DLT platforms.
This is the first test of this type condcuted between two central banks. Its initial potential would be to increase efficiency and reduce the risks of cross-border payments.
Scott Hendry, Bank of Canada’s Senior Special Director of Financial Technology (FinTech), commented: “The world of cross-border payments is complicated and expensive. Our exploratory journey towards the use of DLT is to reduce some of the costs and improve the traceability of these payments. Only through continued collaboration and fundamental research it will be possible for this technology to mature and for policy makers to fully understand its potential”.
Successful Cross-Border Payment
In the experiment, a technique called Hashed Time Contracts (HTLC) was used to connect the networks of both banks and allow the settlement of payment without intermediaries. The banks were advised by Accenture and JP Morgan, which also supported the Canadian network in Corda, and the Singapore network in Quorum, which accelerates cross-border payments.
David Treat, global blockchain lead for Accenture, called the test “a big milestone for the modernization of cross-border, cross-currency transactions”.
Thanks to the success obtained in the project, both financial institutions published a report called “Jasper-Ubin Design Document: Enabling Cross-Border High Value Transfer Using Distributed Ledger Technologies”. In this document, different designs of cross-border settlement systems are proposed, describing the implementation of HTLC and its limitations.
The document also promotes the investigation of DLT interconnectivity mechanisms and alternative network models to foster collaboration among central banks. In fact, both institutions encourage the global financial community to take advantage of these findings.
Sopnendu Mohanty, Chief Financial Technology (Fintech) Officer of Monetary Authority of Singapore (MAS for its initials in English), considers blockchain projects as a challenge and invites other central banks to join the global collaboration for the benefit of the financial industry in general.
“The next projects from the central bank’s blockchain can continue by bringing the exploration of technology together with political questions about the future of cross-border payments”, he said.
MAS believes that the Ubin Project will bring tangible results next year and that there is still more potential to be discovered in Distributed Ledger Technology.
By María Rodríguez