NYIC and MAS research finds that DLT improves cross-border payments
- NYIC and MAS have released a research report on the Cedar x Ubin+ trial, based on the Cedar Project.
- The experiment focused on cross-border multi-currency payments using vehicle currencies.
- evaluated the potential of DLT to link simulated ledgers of currencies and reduce settlement risk.
The New York Innovation Center (NYIC) of the Federal Reserve Bank of New York and the Monetary Authority of Singapore (MAS) have released a research report on the Cedar Phase II x Ubin + (Cedar x Ubin +) project.
The experience expanded on earlier phases of the Cedar project by the NYIC and Ubin + MAS initiative. The study focused on a multi-currency cross-border scenario, using the composite currencies as a mediator for the less traded currency pairs.
Further, it aimed to evaluate how distributed ledger technology (DLT) could enable communication between different ledgers of simulated currencies, reduce settlement risks, and speed up settlement time. The entire experiment was conducted in a controlled test environment, with simulated bulk central bank digital currencies being used for settlement purposes.
Michelle Neal, Head of Markets Group at the Federal Reserve Bank of New York, quoted:
Our research collaboration with MAS reveals key opportunities for central bank innovation to play a significant role in facilitating wholesale payment flows globally and improving settlement outcomes.
Meanwhile, Leung Seng Cheong, Deputy General Manager at MAS, stated that the Cedar x Ubin+ trial envisions a digital currency landscape where central banks can enhance wholesale central bank digital currency interoperability. This would enable more efficient cross-border payments, even for less liquid currencies, without the need for common infrastructure.
The experiment addressed three main aspects including interoperability and independence, atomic leveling, and near real-time leveling. In terms of interoperability and independence, the experiment successfully linked the ledgers of central bank currencies, allowing each central bank to maintain control of its own ledger without the need for a central clearing authority or a shared network.
In terms of atomic settlement, transactions are only settled if all stages of the cross-currency payment chains have been successfully implemented. This increased settlement certainty and addressed counterparty risk.
In addition, the experiment also achieved near real-time leveling, with a comprehensive leveling taking an average of less than 30 seconds. This provided participants with prompt notifications of payment success.
The study also identified areas for future research and analysis, such as evaluating the ability of network solutions to handle large transaction volumes and potentially increasing the number of payments made per second. In addition, it is also recommended to explore the inclusion of additional currencies backed by central bank ledgers.
NYIC publication, MAS Research Finds DLT Improves Cross-Border Payments appeared for the first time in the coin issue.