MAS and BdF Ground in CBDC Experimentation for Wholesale Cross-border Payment

Singapore's central bank the Monetary Authority of Singapore (MAS) and the Banque de France (BdF), a member of the Eurosystem, issued a joint statement announcing the successful completion of a wholesale cross-border payment and settlement experiment using central bank digital currency (CBDC). 

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Supported by J.P. Morgan's Onyx, the experiment simulated cross-border transactions involving multiple CBDCs (m-CBDC) on a common network between Singapore and France. This reportedly marks the first multiple CBDC (m-CBDC) experiment that applied automated market-making and liquidity management capabilities for cross-border payment and settlement efficiencies.

According to the statement, cross border payments currently rely on correspondent bank arrangements that are subject to limited transparency on foreign exchange rates, restricted operating hours of payment infrastructures and currency settlement delays due to differences in time zones. To address these challenges, the experiment used a common m-CBDC network, aimed at facilitating cross border payments on a 24 x 7 real time basis. 

"This m-CBDC experiment has broken new ground by decentralizing financial infrastructure, to improve liquidity management and market-making services," said MAS Chief FinTech Officer Sopnendu Mohanty regarding the experiment. "It charts the path for scalable CBDC networks where central banks and commercial banks can work together to achieve the vision of cheaper, safer, and more efficient infrastructure for cross-border payments."

Amongst notable outcomes is that it was proven that the number of correspondent banking parties involved in the payment chain for cross-border transactions can be reduced using the m-CBDC network. Consequently, the number of contractual arrangements, the KYC (Know Your Customer) burden, as well as the associated costs, could be cut down, MAS and BdF stated.

MAS also said that whilst the experiment was limited to two central banks, the design of the m-CBDC network enables it to be scaled up to support the participation of multiple central banks and commercial banks located in different jurisdictions.

"It is an opportunity to construct arrangements for multiple CBDCs models, improving cross-border payments, and increasing harmonisation of post-trade procedures," Valérie Fasquelle, director of Infrastructures, Innovation, and Payments - BdF said in a statement.