Central banks to develop prototypes for cross-border CBDC settlement
The Bank for International Settlements has enlisted the central banks of Malaysia, Singapore, South Africa and Australia to test the use of central bank digital currencies (CBDCs) for international settlements.
BIS Experiment Finds CBDCs to Be Effective in Cross-Border Settlements
Central bank digital currencies (CBDC) can be effective in carrying out international transactions between financial institutions according to a recently concluded experiment by the Bank for International Settlements (BIS), an umbrella group for central banks.A report published Wednesday said the “Project Jura’’ experiment took place over three days in November, and was conducted by the central banks of France and Switzerland alongside the BIS Innovation Hub. Project Jura was announced in June and is part of a series of CBDC experiments launched by the Bank of France in 2020.The test examined the effectiveness of wholesale CBDCs – a type of digital asset that can be used only by permitted financial institutions – in a range of cross-border settlements. The total cash value of the experiment was 200,000 euros ($226,000).According to the report, Jura not only explored how central banks could give non-resident commercial banks access to CBDCs, but also the capabilities of distributed ledger technology in recording these transactions.“Our main conclusion is that wholesale CBDCs can settle such transactions both safely and efficiently,” said Benoît Cœuré, head of the BIS Innovation Hub, during a press briefing on Wednesday.Jura is the latest in a series of projects by the BIS Innovation Hub testing possible applications of CBDCs. Earlier this year, Project mCBDC Bridge found wholesale CBDCs could potentially reduce the cost of international transactions while improving settlement speed. Under the mCBDC project, the BIS Innovation Hub center in Hong Kong is working with central banks in Hong Kong, Thailand, China and the United Arab Emirates to build a prototype platform for testing the use of multiple CBDCs for cross-border settlements.Project Jura also continues the work of the Swiss National Bank’s Project Helvetia, which was set up in 2019 to experiment with settlements involving tokenized assets using wholesale CBDCs. To conduct the latest experiment on wholesale CBDCs, the BIS Innovation Hub and the central banks of Switzerland and France collaborated with private firms like Accenture, Credit Suisse, Natixis and UBS.Starting on Nov. 15, Jura tested the direct transfer of euro and Swiss franc wholesale CBDCs between French and Swiss commercial banks for three days, the report said. The transfers were conducted on a single distributed ledger operated by a third party, according to a press statement issued by the BIS.It also tested issuing, transferring and redeeming “tokenized euro-denominated French commercial paper” between French and Swiss financial institutions. Commercial paper represents unsecured, short-term debt issued by corporations. Tokenization allows a real asset like commercial paper to be digitally represented on a blockchain or distributed ledger.According to the report, the tests were conducted using “real-value transactions within the existing legal and regulatory frameworks.” The report emphasized the project was not part of a regulatory sandbox, which added “significant complexity” and realism to the experiment.On the first day of the experiment, Natixis issued 200,000 euros in tokenized commercial paper against the wholesale CBDCs and sold it to UBS. In the following days, there were commercial paper transfers between the two Swiss banks, alongside a number of foreign-exchange transactions.“We wanted to show that we could settle a digital asset and then transfer the proceeds to a different jurisdiction in a real-life environment, abiding by local laws,” Cœuré said.The report suggests that, based on the experiment, an intraday, wholesale CBDC could have a positive impact on financial stability and limited influence on monetary policy. But Sylvie Goulard, deputy governor of the Bank of France, said that the scale of the experiment was too limited to arrive at broader conclusions.“We cannot pretend that what we did with 200,000 euros and a certain type of settlement can be extrapolated for everything, but it is a first step,” Goulard said during the briefing.UPDATE (Dec. 8, 16:15 UTC): Adds link to report and adds Bank of France quote in last paragraph.
Central Bank Digital Currencies: Motives, Economic Implications and the Research Frontier
Dr. Raphael Auer (Head of the BIS Innovation Hub Eurosystem Centre) presents on the topic of “Central Bank Digital Currencies: Motives, Economic Implications and the Research Frontier”
For more details regarding CBER Forum, please visit www.cber-forum.org or follow us @CBER_Forum on Twitter.
Project Cedar, Explained (Wholesale Central Bank Digital Currency Prototype)
Project Cedar is the inaugural project of the New York Innovation Center (NYIC). It is a multiphase research effort to develop a technical framework for a theoretical wholesale central bank digital currency (wCBDC) in the Federal Reserve context.
In Phase I of Project Cedar, a prototype for a wholesale central bank digital currency was developed to demonstrate the potential of blockchain to improve the speed, cost, and access to a critical element of the wholesale cross-border payments market—a foreign exchange (FX) spot transaction.
Project Cedar aims to contribute to a broad and transparent public dialogue about CBDC from a technical perspective. Project Cedar is not intended to advance any specific policy outcome, nor is it intended to signal that the Federal Reserve will make any imminent decisions about the appropriateness of issuing a retail or wholesale CBDC, nor how one would necessarily be designed.
For more on Project Cedar, visit: https://www.newyorkfed.org/aboutthefed/nyic/project-cedar
For more on the New York Innovation Center, visit: https://nyfed.org/innovation