BIS Central Bank Digital Currency Trial Success
The Bank for International Settlements (BIS) has successfully trialled a cross-border payments platform utilising Central Bank Digital Currencies (CBDCs), along with four Central Banks from the United Arab Emirates, Hong Kong, China and Thailand, as well as two banking associations, one exchange and over 15 private banks, including Goldman Sachs, HSBC, UBS and Société Générale.
The platform, called mBridge, uses Distributed Ledger Technology (DLT), which, combined with a friendly regulatory sandbox, solves many of the barriers and costs currently associated with cross-border payments.
This pilot confirmed that CBDCs can significantly increase the speed of cross-border transactions, from the current system, which can take multiple days, to almost instantaneous settlements [1]. Several other benefits include simpler operations, no FX settlement risk, higher transparency and a lower reporting burden.
The main use case, which was trialled by all parties mentioned, was International Trade Settlement. However, the mBridge platform is also being used for other use case trials. For example, Goldman Sachs has been trialling a primary issuance of a tokenised corporate bond and ensuring an atomic, cross-border and cross-currency settlement. Further development could include an over the counter (OTC) secondary trading exchange. Goldman stated that the current process for bond issuance has scope for efficiency gains through redesign, streamlining and automation, which would also eliminate some intermediaries [2].
Standard Chartered is working on a layer-2 blockchain which expands upon the benefits of mBridge to offer instant and low cost transactions across borders, specifically for low value cross-border payment segment, which is increasingly common in the modern global economy and driven by the increase of e-commerce [3]. Low Value Aggregation Services (LOVAS) eliminates structural costs associated with liquidity inefficiencies and foreign exchange and provides more support for small businesses by mitigating non-payment risk with instant cross-border payments.
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This is an important step forward for DLT technology and CBDCs. Not only was the trial successful and showed a significant amount of efficiency and cost savings, but it also signals a solid interest in developing blockchain platforms and tokenisation tools in the traditional finance market amongst some of the biggest players.
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