The Monetary Authority of Singapore and the Banque de France are hailing the results of a cross-border digital currency simulation that could upend the current correspondent banking model, enabling banks to conduct overseas transactions across a single shared ledger.
The experiment, supported by JPMorgan’s Onyx, simulated cross-border transactions involving multiple CBDCs (m-CBDC) on a common network between Singapore and France.
Cross border payments currently rely on correspondent bank arrangements that are subject to limited transparency on foreign exchange rates, restricted operating hours of payment infrastructures and currency settlement delays due to differences in time zones.
To address these challenges, the experiment used a common m-CBDC network, that applied automated market making and liquidity management capabilities aimed at facilitating cross border payments on a 24 x 7 real time basis.
The experiment simulated cross-border and cross-currency transactions between Singapore dollars and euros, conducted using a permissioned, privacy-enabled blockchain based on Quorum technology.
For the purposes of the trial, blockchain nodes were set up across private and public cloud infrastructures in both countries, while smart contracts automatically managed the EUR/SGD currency exchange rate in line with real-time market transactions and demands
The two central banks say the project demonstrated that the number of correspondent banking parties involved in the payment chain for cross-border transactions can be reduced. Consequently, the number of contractual arrangements, the KYC burden as well as the associated costs could be cut down.
Sopnendu Mohanty, chief fintech officer of MAS says: “Building a multi-currency shared ledger infrastructure allows participants across countries to transact with each other directly in different currencies. This m-CBDC experiment has broken new ground by decentralizing financial infrastructure, to improve liquidity management and market making services. It charts the path for scalable CBDC networks where central banks and commercial banks can work together to achieve the vision of cheaper, safer and more efficient infrastructure for cross border payments.”
While the experiment was limited to two central banks, the design of the network enables it to be scaled up to support the participation of multiple centrals banks and commercial banks located in different jurisdictions, he adds.