MAS and French central bank complete wholesale cross-border payment and settlement experiment using CBDC

THE Monetary Authority of Singapore (MAS) and French central bank Banque de France announced on Thursday that they have successfully completed a wholesale cross-border payment and settlement experiment using central bank digital currency (CBDC).

The experiment simulated cross-border transactions involving multiple CBDCs on a common network between Singapore and France, supported by JPMorgan's Onyx blockchain platform.

CBDCs are digital currencies that are backed by central banks. Increasing attention has been paid to them for their potential to improve cross-border payments.

This is the first multi-CBDC experiment that applied automated market making and liquidity-management capabilities to reap cross-border payment and settlement efficiencies, said the two central banks in a joint statement.

Currently, cross-border payments rely on correspondent bank arrangements that have limited transparency on foreign exchange rates, restricted operating hours of payment infrastructure, and currency settlement delays due to differences in time zones.

To address these challenges, the experiment used a common multiple-CBDC network, aimed at facilitating cross-border payments on a 24/7, real-time basis in line with real-time market transactions and demands. The experiment simulated cross-border and cross-currency transactions for the Singapore Dollar (SGD) CBDC and the euro (EUR) CBDC, and was conducted using a permissioned, privacy-enabled blockchain based on Quorum technology.

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The design of the multi-CBDC network enables it to be scaled up to support the participation of multiple central banks and commercial banks in different jurisdictions. This offers "great potential" to simplify integration and significantly improve cost efficiencies, said the two parties in their statement.

This experiment is also one of the last of the French central bank's wholesale experiment programme, which will be achieved by fall 2021.

Among the key outcomes accomplished was visibility on cross-border payments while retaining independent control over the issuance and distribution of their own CBDC at the same time. The experiment also demonstrated interoperability across different types of cloud infrastructure, with blockchain nodes set up across private and public cloud infrastructures in both countries.

Another outcome of the experiment was that with the potential reduction of the number of correspondent banking parties involved in the payment chain for cross-border transactions, the Know-Your-Customer (KYC) burden as well as associated costs can be cut down.

Sopnendu Mohanty, chief fintech officer of MAS, said that this multi-CBDC experiment has "broken new ground" by decentralising financial infrastructure to improve liquidity management and market making services. "It charts the path for scalable CBDC networks in which central banks and commercial banks can work together to achieve the vision of cheaper, safer and more efficient infrastructure for cross-border payments," he said.

Valérie Fasquelle, director of Infrastructures, Innovation and Payments at Banque de France, said: "It is an opportunity to construct arrangements for multiple-CBDC models, improving cross-border payments and increasing harmonisation of post-trade procedures."

This was not the MAS' maiden exploration of CBDCs. It had worked on Project Ubin, a five-year project that looked at models for cross-border payments using blockchain and CBDCs; it partnered the Bank of Canada, as well as with the financial industry to consider the benefits of such models.

Countries around the world are also looking to issue CBDCs, with China reportedly aiming to be the first major central bank to do so. Others looking at CBDC developments include the Bank of Japan, the US Fed and the European Central Bank.