The researchers built on their respective projects to demonstrate cross-border payments utilizing 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 issued the outcomes of their joint “ Project Cedar Phase II x Ubin. ” The project examined the usage of central bank digital currency (CBDC) for wholesale cross-border payments utilizing one or additional vehicle currencies.
A vehicle currency is a largely liquid currency utilized to facilitate the trading of two lower liquid currencies. The initial low-liquidity currency is converted into vehicle currency, which is also converted into an alternate low-liquidity currency. MAS deputy managing director Leong Sing Chiong spoke 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 being wholesale CBDC research, ” according to the report, and focuses on interoperability, atomic settlement the necessity that agreement be simultaneous for any of them to work, and near real-time settlement. The joint project was embarked on in November.
Related: FX spot settlement in 10 seconds: NY Fed releases results of wholesale CBDC research
After examining the options, the project opted to utilize hashed timelock smart contracts to bridge ledgers on distinct distributed ledger systems to execute simulated cross-border,cross-currency payments. It similarly makes usage of an “ off-chain messaging channel. ” The solution could work on non-blockchain systems as well, the report spoke.
The project achieved interoperability utilizing hashed timelock contracts in all experiment scenarios. Payments are settled atomically at an average rate of 6.48 payments per second. End-to-end settlement averaged lower than 30 seconds.
The MAS embarked on its Project Ubin to research CBDC in 2017. The NYIC was established in partnership with the Bank of International Settlements Innovation Hub in 2021.
(DEREK ANDERSEN, Cointelegraph, 2023)