The Monetary Authority of Singapore (MAS) and the Bank of Canada (BoC) have employed blockchain technology to send each other digital currencies, marking the first such successful trial between two central banks.

The success of the experiment in using central bank digital currencies and distributed ledger technology (DLT) could lead to cheaper and faster cross-border and cross-currency payments.

Building on innovation

In a joint statement, the pair confirmed they have been collaborating on the use of DLT and central bank digital currencies to make the cross-border payments process more efficient and secure

MAS’ experimental domestic payment network Project Ubin, was linked up with its Canadian counterpart’s Project Jasper, as part of the test done in partnership with global management consultancy Accenture and JPMorgan Chase.

Jasper and Ubin are built on two different blockchain networks: R3’s Corda and JPMorgan’s Quorum, respectively. The two networks were connected via a technique known as hashed time-locked contracts, enabling direct Payment versus Payment (PvP) settlement without the use of an intermediary.

“Project Jasper and Project Ubin have built on previous innovations in the payments area to demonstrate that cross-border payment and settlement can be made simpler and more efficient,” Sopnendu Mohanty, MAS’ chief fintech officer, stated. “Together, these projects have addressed many technical questions and brought the technology to a higher level of maturity.”

The two central banks have published a joint report that proposes various design options for cross-border settlement systems that highlight potential limitations and challenges.

“The world of cross-border payments is complicated and expensive: our exploratory journey into the use of DLT to try to reduce some of those costs and improve traceability has yielded many lessons,” said Scott Hendry, the BoC’s senior special director of financial technology.

 “Only through continued collaboration and fundamental research will it be possible for this technology to mature and for policy makers to fully understand its potential.”

Accenture’s global blockchain lead, David Treat, described the experiment as “a big milestone for the modernisation of cross-border, cross-currency transactions.”

A note of caution

The BoC and MAS caution that the Jasper-Ubin project is experimental in nature and it has yet to be decided whether the two will eventually use blockchain technology for “high-value cross-border payments.

In their report, the two central banks comment: “A fragmented world, with differing standards, processes, norms and regulations is the key challenge in cross-border payments today.

“DLT could offer an easier and faster path towards adoption than a centralised approach because it can leave the different jurisdictions involved in control of their portion of the network while allowing for tight integration with the rest of the network.”

The duo also encouraged other central banks, financial institutions and tech firms to join the initiative in making cross-border payments “cheaper, faster and safer.”