The Monetary Authority of Singapore (MAS) and Federal Reserve Bank of New York are teaming up to explore the use of Wholesale CBDCs for cross-border payments. The partnership will bring together MAS’s Ubin+ project with the second phase of the New York Fed’s Project Cedar for a joint experiment.
The Project Cedar Phase II x Ubin+ experiment 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.
Reports detailing the experiment and findings of Project Cedar Phase II x Ubin+ will be released in 2023. Project Cedar is a multi-phase research effort to develop a technical framework for a theoretical wCBDC in the Federal Reserve context and aims to contribute to a broad and transparent public dialogue about CBDC from a technical perspective.
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Phase One of Project Cedar found that using a wCBDC prototype to facilitate transactions supported by blockchain technology could improve the speed and safety of cross-border wholesale payments. Ubin+ is MAS’ collaborative initiative with international partners to improve the efficiency and reduce the risks of cross-border foreign exchange settlement, by advancing cross-border connectivity and interoperability of wholesale digital currencies. The effort will look to enhance designs for atomic settlement of cross-border cross-currency transactions, leveraging wCBDCs as a settlement asset.
The experiment, which entails establishing connectivity across multiple heterogeneous simulated currency ledgers, aims to significantly reduce settlement risk, a key pain point in cross-border cross-currency transactions. A report on the work will be released next year, although the New York Fed stresses that it is not designed to advance any specific policy outcomes.
Michelle Neal, head, Markets Group, New York Fed, says;
“Building off Phase I, the Project Cedar Phase II x Ubin+ collaboration will provide further visibility into the functionality and interoperability of multi-currency ledger networks utilizing their own unique designs.”
Phase one of Project Ceder simulated a foreign exchange spot trade and introduced a wholesale CBDC prototype to test whether using blockchain technology could improve speed, cost, and access to cross border wholesale payments. The experiment found that payments could be settled in under 15 seconds and that the simulated ledger network enabled atomic settlement, meaning both sides of the transactions were settled either simultaneously or not at all – slashing risks.