The Bank for International Settlements (BIS) Innovation Hub and four central banks including the Reserve Bank of Australia, Bank Negara Malaysia, Monetary Authority of Singapore, and South African Reserve Bank announced on Thursday they will join forces to test the use of central bank digital currencies (CBDCs) for international settlements.
Led by the Innovation Hub’s Singapore Center, the project, dubbed Project Dunbar, aims to develop prototype shared platforms for cross-border transactions using multiple CBDCs, BIS Innovation Hub, and the central banks said in a joint statement.
These multi-CBDC platforms will allow financial institutions to transact directly with each other in the digital currencies issued by participating central banks, eliminating the need for intermediaries and cutting the time and cost of transactions.
The project will work with multiple partners to develop technical prototypes on different distributed ledger technology platforms. It will also explore different governance and operating designs that would enable central banks to share CBDC infrastructures, benefitting from the collaboration between public and private sector experts in different jurisdictions and areas of operation.
“The multi-CBDC shared platform explored under Project Dunbar has the potential to leapfrog the legacy payment arrangements and serve as a foundation for a more efficient international settlement platform. We hope the project will spur greater public-private collaboration to enable fast and frictionless cross-border payments, combining both the benefits of distributed ledger technology and the efficiency of a common platform,” said Bank Negara Malaysia Assistant Governor Fraziali Ismail.
“With this group of capable and passionate partners, we are confident that our work on multi-CBDCs for international settlements will break new ground in this next stage of CBDC experimentation and lay the foundation for global payments connectivity,” said Andrew McCormack, Centre Head of the BIS Innovation Hub Singapore Center.
“Enhancing cross-border payments has become a priority for the international regulatory community and something that we are also very focused on in our domestic policy work,” Reserve Bank of Australia Assistant Governor (Financial System) Michele Bullock said.
“The findings on how a common platform can be governed effectively and managed efficiently will shape the blueprint of the next generation payment systems,” said Monetary Authority of Singapore Chief FinTech Officer Sopnendu Mohanty.
“After years of mostly domestic research and exploration, we are very pleased to see that these common insights about the need to explore cross-border CBDC payments and interoperability are coming together internationally,” said South African Reserve Bank Deputy Governor Rashad Cassim.
Project Dunbar’s work will explore the international dimension of CBDC design and support the efforts of the G20 roadmap for enhancing cross-border payments, according to the statement.
Its results, expected to be published in early 2022, will inform the development of future platforms for global and regional settlements. Technical prototypes of the shared platforms, developed in collaboration with different technology partners, will be demonstrated at the Singapore FinTech Festival in November 2021.
According to BIS, interest in CBDC has grown in response to changes in payments, finance, and technology, as well as the disruption caused by the Covid-19 pandemic.
A 2021 BIS survey of central banks found that 86 percent are actively researching the potential for CBDCs, 60 percent were experimenting with the technology and 14 percent were deploying pilot projects.
A CBDC would be a digital banknote and it could be used by individuals to pay businesses, shops, or each other (a “retail CBDC”), or between financial institutions to settle trades in financial markets (a “wholesale CBDC”), BIS explained on its website.
Central banks are also exploring whether CBDC could help them to achieve their public good objectives, such as safeguarding public trust in money, maintaining price stability while ensuring safe and resilient payment systems and infrastructure, it added.
Featured image credits: BIS