The researchers built on their separate projects to demonstrate cross-border payments using illiquid currencies with an intermediate “vehicle” currency.
The Federal Reserve Bank of New York’s New York Innovation Center (NYIC) and the Monetary Authority of Singapore (MAS) have published the results of their joint “Project Cedar Phase II x Ubin+.” The project examined the use of central bank digital currency (CBDC) for wholesale cross-border payments using one or more vehicle currencies.
A vehicle currency is a highly liquid currency used to facilitate the trading of two less liquid currencies. The first low-liquidity currency is converted into the vehicle currency, which is then converted into a second low-liquidity currency. MAS deputy managing director Leong Sing Chiong said in a statement:
“The Cedar x Ubin+ experiment envisages a future digital currency landscape where central banks can enable interoperability of wholesale CBDCs to facilitate more efficient cross-border payment flows including for less liquid currencies, without requiring a common infrastructure.”
Cedar x Ubin+ “builds on existing wholesale CBDC research,” according to the report, and focuses on interoperability, atomic settlement — the requirement that settlement be simultaneous for any of them to work — and near real-time settlement. The joint project began in November.
Related: FX spot settlement in 10 seconds: NY Fed releases results of wholesale CBDC research
After examining the options, the project chose to use hashed timelock smart contracts to bridge ledgers on distinct distributed ledger systems to execute simulated cross-border, cross-currency payments. It also makes use of an “off-chain messaging channel.” The solution could work on non-blockchain systems as well, the report said.
Yesterday, in partnership with @MAS_sg, we released the Project Cedar Phase II x Ubin+ Research report. The study found that distributed ledger technology (DLT) could improve cross-border multi-currency payments and settlements. https://t.co/OKemxrYLZY
— New York Fed (@NewYorkFed) May 19, 2023
The project achieved interoperability using hashed timelock contracts in all test scenarios. Payments settled atomically at an average rate of 6.48 payments per second. End-to-end settlement averaged less than 30 seconds.
The MAS began its Project Ubin to explore CBDC in 2017. The NYIC was established in partnership with the Bank of International Settlements Innovation Hub in 2021.
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