Cross-Border Payments are Now Being Settled with Blockchain by Central Banks

Many thought this was far from becoming reality, but the central banks of Canada and Singapore have already performed a trial of cross-border payments involving blockchain technology and central bank digital currencies.

The Bank of Canada (BoC) and the Monetary Authority of Singapore (MAS) have confirmed that the trial was successful and exhibits vast potential to make cross-border payments more efficient, while reducing related risks.

The joint effort of the two banks in this endeavor has suggested the connection between their respective blockchain projects, Jasper and Ubin, that are built on two distinct networks: R3’s Corda and JPMorgan’s Quorum. The networks were connected through the use of a mechanism called hashed time-locked contracts that enabled streamlined Payment versus Payment (PvP) settlement, eliminating the need for intermediary’s presence. Accenture and JPMorgan provided tech support to the trial, as well as assistance to the banks in the development of their separate projects.

Bank of Canada’s senior special director for financial technology, Scott Hendry, has issued a statement that they are on a mission of applying distributed ledger technology to reduce costs and improve the tracking of cross-border payments.

The two projects, Jasper and Ubin, were initiated in 2016 with a goal to improve the efficiency of banking payments.

The successful trial confirmed that there is high potential of blockchain to modernize the cross-border and cross-currency transactions.

Following the event, a joint report was published by the two Central banks, giving insights on different design options that will further enable such settlement systems and make them accessible. It also highlighted the fact that the world of cross-border payments today is characterized by fragmentation, differing standards, processes, norms and regulations, which constitutes a significant challenge to the development of new efficient mechanisms. Distributed ledger technology can provide a simplified and faster path towards centralization through increasing integration on multiple levels. Yet, the joint project still remains an experiment and time is necessary in order to see the what outcomes it will have.

The BoC and MAS have encouraged other central banks, financial institutions and tech firms to unite in the challenge of making cross-border payments “cheaper, faster and safer.”