The New York Federal Reserve and the Monetary Authority of Singapore (MAS) have come together to test interoperability between their central bank digital currencies (CBDCs). In the latest test, the two regulators focused on payment speeds and verified that their CBDCs can indeed be used for cross-border payments.
The experiment involved conducting a digital currency transaction between the New York Fed’s digital dollar prototype and the MAS’s digital Singapore dollar prototype. The goal was to see if the two digital currencies could be used seamlessly for cross-border payment transactions.
The experiment took place on a private network, with the New York Fed and MAS using different blockchain networks for their respective CBDCs. According to the regulators, the proof-of-concept was successful, with both CBDCs being able to transfer funds seamlessly and quickly.
One of the key highlights of the experiment was the speed of the transaction. The regulators were able to move funds between the two CBDCs in just a few seconds, demonstrating how CBDCs can speed up cross-border payments.
Cross-border payments have traditionally been slow, expensive, and fraught with challenges. The use of CBDCs has the potential to significantly improve the speed and reliability of cross-border payments, bringing benefits to businesses and consumers alike.
In addition to speed, the experiment also tested the interoperability of the two CBDCs. Interoperability is the ability for different CBDCs to seamlessly communicate and transact with each other, regardless of the underlying technology used.
The test showed that the New York Fed’s digital dollar and the MAS’s digital Singapore dollar were able to communicate and transact with each other, making cross-border payments possible.
Interoperability is a significant issue for CBDCs, as different countries may use different technologies for their CBDCs. If CBDCs are not interoperable, cross-border transactions may be difficult or impossible.
This experiment demonstrates that CBDCs can be designed to be interoperable, provided that regulators work together to ensure that they can communicate with each other.
While CBDCs show great potential for improving cross-border payments, they also raise concerns around privacy and security. The regulators involved in the experiment emphasized that ensuring the security and privacy of CBDC transactions is of utmost importance.
To address these concerns, regulators will need to develop robust security and privacy protocols for CBDCs. Robust protocols will ensure that transactions are secure and private, and that consumers and businesses can use CBDCs with confidence.
In conclusion, the latest experiment by the New York Fed and the Monetary Authority of Singapore shows that CBDCs have the potential to significantly improve cross-border payments. The experiment successfully demonstrated that CBDCs can be used for cross-border payments, and that they can be made interoperable with the right protocols.
While there are concerns around privacy and security, these can be addressed through the development of robust protocols. As more countries develop their own CBDCs, it is likely that interoperability will become an increasingly important issue for regulators to address.
Overall, this experiment is a significant step forward in the development of CBDCs and demonstrates that they have the potential to transform the way cross-border payments are conducted.
Central bank digital currency (CBDC) systems can be used for cross-border and cross-currency payments, according to a new report published by researchers with the New York Federal Reserve and Monetary Authority of Singapore (MAS). The report is part of the ongoing joint research efforts of Project Cedar and Project Ubin. The study found that the respective teams were able to conduct cross-border transactions across different distributed ledger (DLT) and hashed timelock contract (HTLC) technology stacks, with near real-time settlement finality.
The researchers looked at questions of interoperability, atomic settlement, and whether transactions could settle near real-time. The teams used simulated CBDCs and hypothetical payments to test their interoperability hypotheses. The atomic settlement tests found that all trades settled nearly 6.5 payments per second on average with a peak of 47 payments per second. These payments were end-to-end, and the researchers were able to reach an average payment latency of less than 30 seconds.
The report specified that the research focused on studying technical issues and “does not reflect any decision to implement” CBDCs or the underlying tech stacks anywhere in particular. The researchers created eight different scenarios to test their interoperability hypotheses.
“Hashed timelock contracts, a form of smart contract, were used to successfully bridge ledgers with distinct underlying DLT systems and execute simulated cross-border, cross-currency payments,” the report said. “This demonstrated that interoperability could be established across ledgers with different technical designs.”
In a statement, the Head of the New York Fed’s Market Group, Michelle Neal, called cross-border payments “a major railway” for 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,” Neal said.
Similarly, MAS Deputy Managing Director Leong Sing Chiong said “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” in a statement.
CBDCs are digital versions of fiat currency issued by central banks. They are designed to make payments faster, cheaper, and more secure. CBDCs are being developed by central banks around the world, with China being one of the first to launch its own digital currency, the digital yuan.
Cross-border payments currently rely on correspondent banking, which can be slow and expensive. CBDCs could potentially eliminate the need for correspondent banking and make cross-border payments more efficient. Furthermore, CBDCs could be used to settle transactions in real-time, reducing settlement risk and improving financial stability.
In conclusion, the research collaboration between the New York Federal Reserve and Monetary Authority of Singapore demonstrates the potential of CBDCs to facilitate cross-border and cross-currency payments using different DLT and HTLC technology stacks. The findings of the report suggest that CBDCs could significantly improve the efficiency of cross-border payments and reduce settlement times. However, further research and experimentation are needed before the implementation of CBDCs becomes a reality.