A Singapore-led fintech innovation project is bringing together central banks from around the world to trial the use of central bank digital currencies (CBDCs) for cross-border payments.
The Bank for International Settlements Innovation Hub, the Monetary Authority of Singapore, Bank Negara Malaysia, the Reserve Bank of Australia, and the South African Reserve Bank will join forces to test the CBDCs under Project Dunbar, led by the BIS Innovation Hub’s Singapore Centre.
The project will develop prototypes for shared platforms that will enable international settlements with digital currencies issued by multiple central banks.
In a statement announcing their collaboration, the banks said such multi-CBDC platforms would help facilitate seamless multi-currency fund transfers. They allow financial institutions to transact directly with each other in digital currencies issued by participating central banks, eliminating the need for intermediaries and cutting the time and cost of transactions.
Legacy payment infrastructure often uses a number of intermediaries in the banking transaction chain, adding to the expense and complexity of cross-border transactions. So, just as the use of cryptocurrencies is becoming more widespread, central banks are looking to digital currencies – in effect, digital banknotes – as a faster, more transparent way of making international payments.
“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,” said Michele Bullock, Assistant Governor (Financial System) at the Reserve Bank of Australia, one of the participating central banks.
The multi-bank effort under Project Dunbar will explore different governance and operating designs so central banks can share CBDC infrastructure and benefit from public and private sector expertise in different jurisdictions and areas of operation.
“Project Dunbar brings together central banks with years of experience and unique perspectives in CBDC projects and ecosystem partners at advanced stages of technical development on digital currencies,” said Andrew McCormack, Centre Head of the BIS Innovation Hub Singapore Centre.
“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.”
Project Dunbar will work with multiple partners to develop technical prototypes on different distributed ledger technology platforms. The prototypes of the shared platforms will be on show at the Singapore FinTech Festival in November 2021.
Elsewhere in the region, China is well ahead on the development of its own sovereign digital currency, with its DCEP (Digital Currency/Electronic Payments) at an advanced pilot stage.
The People’s Bank of China (PBOC) says the DCEP makes payments more efficient and promotes financial inclusion. But authorities will be able to see exactly who is making financial transactions and where – unlike the booming unregulated market in Bitcoin and other decentralised cryptocurrencies.
China has increasingly cracked down on crypto activities; in late September it dealt another blow to Bitcoin by banning all cryptocurrency transactions and stepping up moves to stop illegal mining of digital assets.