NYIC and MAS publish cross-border payments study findings
19 May 2023 US
Image: Oleksii/stock.adobe.com
The Federal Bank of New York鈥檚 New York Innovation Center (NYIC) and the Monetary Authority of Singapore (MAS) have published the results of their Project Cedar Phase II x Ubin+ project (Cedar x Ubin+). The organisations have concluded that DLT is able to support enhancements to cross-border multi-currency payments and settlements.
The project investigated the efficiency of distributed ledger technology (DLT) in multi-currency cross-border wholesale payments and settlements, specifically looking at the use of vehicle currencies as a bridge for the exchange of less widely-traded currency pairs. The main pain points targeted in the experiment were settlement risk, settlement time and connectivity across currency ledgers.
Simulated payments in the experiment were settled atomically, requiring the successful execution of all legs in the cross-currency payment chain. With this approach. Counterparty risk is reduced and the likelihood of settlement is increased.
End-to-end settlement was achieved, on average, in under 30 seconds, with participants able to see a payment鈥檚 success almost instantly.
Central bank currency ledgers were interlinked for the experiment, allowing each ledger to be customised in design and operation. By doing so, the need for a central clearing authority or a shared central network was eliminated.
The experiment was conducted in a test environment and used simulated wholesale central bank digital currencies (CBDCs).
Looking forwards, the organisations highlighted the ability to scale as an area requiring greater attention. The potential for increased payments settled per second and the inclusion of additional currencies supported by central bank ledgers could prompt an increase in transaction volumes.
Commenting on the findings, Michelle Neal, head of the markets group at the New York Fed, says: 鈥淐ross-border payments are a major railway for facilitating the functioning of the global economy. Our research collaboration with the MAS reveals key opportunities for central bank innovation to play an important role in easing wholesale payment flows globally and improving settlement outcomes.鈥�
Leong Sing Chiong, deputy managing director of markets and development at MAS, adds: The Cedar x Ubin+ experiment envisages a future digital currency landscape where central banks can enable interoperability of wholesale CBDCs to facilitate more efficient cross-border payment flows including for less liquid currencies, without requiring a common infrastructure.鈥�
The Monetary Authority of Singapore has also been working closely with the Bank of International Settlement Innovation Hub on developing a digital payments infrastructure that will support multiple CBDCs.
The project investigated the efficiency of distributed ledger technology (DLT) in multi-currency cross-border wholesale payments and settlements, specifically looking at the use of vehicle currencies as a bridge for the exchange of less widely-traded currency pairs. The main pain points targeted in the experiment were settlement risk, settlement time and connectivity across currency ledgers.
Simulated payments in the experiment were settled atomically, requiring the successful execution of all legs in the cross-currency payment chain. With this approach. Counterparty risk is reduced and the likelihood of settlement is increased.
End-to-end settlement was achieved, on average, in under 30 seconds, with participants able to see a payment鈥檚 success almost instantly.
Central bank currency ledgers were interlinked for the experiment, allowing each ledger to be customised in design and operation. By doing so, the need for a central clearing authority or a shared central network was eliminated.
The experiment was conducted in a test environment and used simulated wholesale central bank digital currencies (CBDCs).
Looking forwards, the organisations highlighted the ability to scale as an area requiring greater attention. The potential for increased payments settled per second and the inclusion of additional currencies supported by central bank ledgers could prompt an increase in transaction volumes.
Commenting on the findings, Michelle Neal, head of the markets group at the New York Fed, says: 鈥淐ross-border payments are a major railway for facilitating the functioning of the global economy. Our research collaboration with the MAS reveals key opportunities for central bank innovation to play an important role in easing wholesale payment flows globally and improving settlement outcomes.鈥�
Leong Sing Chiong, deputy managing director of markets and development at MAS, adds: The Cedar x Ubin+ experiment envisages a future digital currency landscape where central banks can enable interoperability of wholesale CBDCs to facilitate more efficient cross-border payment flows including for less liquid currencies, without requiring a common infrastructure.鈥�
The Monetary Authority of Singapore has also been working closely with the Bank of International Settlement Innovation Hub on developing a digital payments infrastructure that will support multiple CBDCs.
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