Another real-world use for blockchain. Central banks’ fascination with blockchain, or distributed ledger technology (DLT), may soon become a cost-effective solution for cross-border payments, after the Bank of Canada (BoC) and the Monetary Authority of Singapore (MAS) successfully sent each other digital currency. The test is a first-of-its-kind cross-currency transaction between two central banks using a blockchain platform that also did not require an intermediary in the settlement process. In a collaborative effort, the BoC and MAS linked up their separate experimental DLT networks. The trial was supported by Accenture and JPMorgan, which helped develop both the Canadian network and the Singapore project blockchain technology. The trial used a technique called hashed time-locked contracts to connect the two networks and allow “payment vs payment” settlement, according to a joint statement. Payment versus payment (PVP) ensures that a transfer in one currency occurs if and only if the final transfer in the other currency has taken place. Following the trial, BoC and MAS published a report proposing different design options for cross-border settlement and areas of research in DLT interconnectivity and alternative networks. The report urges further collaboration among central banks, financial institutions and fintechs. “Our exploratory journey into the use of DLT … has yielded many lessons,” said Scott Hendry, BoC senior special director of Financial Technology. Sopnendu Mohanty, chief fintech officer at MAS, added that the next wave of central bank blockchain projects can extend progress by matching technology to policy on cross-border payments. Overhauling cross-border payments is widely considered by central banks as key to making payments faster and cheaper. However, differences in regulation, technical compatibility and concerns over cybersecurity have slowed widespread adoption. But a January report by the Bank for International Settlements said more than 40 central banks around the world are currently, or soon will be, experimenting with central bank digital currency—albeit cautiously. Ashley Lannquist, project lead for DLT at the World Economic Forum, notes that the Bank of France is among the few that have fully deployed blockchain. MAS is considering granting virtual banking licenses to fintech firms, as Singapore bids to retain its status as a fintech hub.
The Bank of Canada and the Monetary Authority of Singapore have exchanged digital currency in a first-of-its-kind direct cross-currency purchase between central banks on a blockchain platform. The two institutions connected their independent distributed ledger networks with the support of Accenture and JPMorgan. Hashed time-locked contracts were used for a payment vs payment settlement, which only allows one transaction to take place if the other goes through. The trial represents a step forward in cross-border digital currency payments, whose overhaul many banks see as a focus for more efficient business interactions across multiple regulatory markets.