BIS Brings Cross-Border CBDC Platform Closer to Reality
The Bank of international Settlements (BIS) has developed an experimental platform that promises to enable international settlements using digital currencies issued by multiple central banks (mCBDCs).
Project Dunbar, led by BIS Innovation Hub’s Singapore center, along with the central banks of Australia, Malaysia, Singapore and South Africa, is designed to facilitate direct cross-border transactions between financial institutions in different currencies, with the potential to cut costs and increase speed, according to an announcement on Tuesday.
A CBDC, or central bank digital currency, is a digital banknote that can be used by individuals to pay businesses or other individuals (a retail CBDC), or it could be used by financial institutions and wholesale market participants to settle trades in financial markets or other transactions (a wholesale CBDC).
On a multi-CBDC common platform, each participating central bank issues its own CBDC in its own domestic currency. Participating commercial banks are then able to hold these CBDCs directly, gaining access to foreign currencies without the need for accounts with correspondent banks. As all participating banks could potentially hold the different CBDCs directly, they would be able to transact directly with each other in the participating currencies, BIS said in its report on the project.
The project’s workstreams focused on high-level functional requirements and design, and two concurrent technical streams that developed prototypes on different technological platforms (Corda and Partior).
“Project Dunbar demonstrated that key concerns of trust and shared control can be addressed through governance mechanisms enforced by robust technological means, laying the foundation for the development of future global and regional platforms”, Andrew McCormack, head of the BIS Innovation Hub Centre in Singapore, said in the announcement.
BIS said that ideally, there would be a “single global settlement platform that connects all central banks and commercial banks”. However, given the complexity of having multiple central banks
sharing critical financial infrastructures and the unique requirements of each jurisdiction, a “common multi-CBDC platform may be more likely to be implemented as a series of regional platforms rather than as a single global platform”, the report said.
MAS previously developed a prototype multi-currency wholesale settlement network, which enabled issuance or distribution of different digital currencies on a common network, as part of Project Ubin, which was launched in 2016 as a collaborative project with the industry to explore the use of blockchain and distributed ledger technology (DLT) for clearing and settlement of payments and securities.