The Central Bank of Canada and Monetary Authority of Singapore (MAS) have jointly announced the successful “experiment” of cross border payments using blockchain or distributed ledger technology (DLT). The two central banks claim this is the first test anywhere of its kind stating it has “great potential to increase efficiencies and reduce risks for cross-border payments.”
MAS is Singapore’s central bank and integrated financial regulator.
“[We] 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.”
The banks note that currently, cross border payments are slow and costly. The existing process relies on correspondent banks and a procedure that is inneficient and cumbersome. By using DLT and central bank digital currencies (CBDCs) the money moves, faster, cheaper and more safely.
The two separate banks have connected each respective entities: Project Jasper and Project Ubin1. These two projects have been built on different DLT platforms.
The separate teams used a technique called “Hashed Time-Locked Contracts” (HTLC) to connect the two networks and allow Payment versus Payment2 (PvP) settlement without the need for a trusted third party to act as an intermediary.
The Jasper-Ubin project3 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
The Bank of Canada and MAS have jointly published a report that proposes different design options for cross-border settlement systems. The report suggests areas of research in DLT interconnectivity mechanisms and alternative network models. The two entities believe this is indicative of further opportunities for collaborations among central banks and other Fintechs plus traditional financial service firms. They encourage the global financial community to build upon their findings.
Scott Hendry, Bank of Canada Senior Special Director, Financial Technology, issued a statement saying 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 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.”
Naveen Mallela, Head of Digital, Asia Pacific, Treasury Services, J.P. Morgan, said that J.P. Morgan is at the forefront of blockchain innovation:
“… we will continue to invest in relevant technologies to improve the payment experience for our clients.”
David Treat, Managing Director and Global Blockchain Lead, Accenture, added that CBDCs, tokenization, and distributed ledger technology are key enablers for the future of financial systems.
“The successful outcome of the Jasper-Ubin project is a big milestone for the modernisation of cross-border, cross-currency transactions. This collaboration between central banks, industry participants and technology experts has shown that material transformation is possible and that the challenges can be overcome.”