Cross-border payments using blockchain-based solutions may soon become a reality, as central banks express growing interest in the technology. Recently, the Bank of Canada (BoC) and the Monetary Authority of Singapore (MAS) put the technology to trial by sending each other digital currency.
The success of the central banks — the BoC and MAS — may lead to the introduction of new services, as blockchain eliminates the need for an intermediary in the settlement process.
For the trial, the banks connected their independently developed distributed ledger technology (DLT) networks for the transfer, according to Global Finance. Moreover, the trial was supported by Accenture and JPMorgan Chase and Co., companies that had assisted the blockchain technology project of both central banks.
The experiment was carried out with a technique known as hashed time-locked contracts. These contracts were used to connect the two networks and enable ‘payment vs. payment’ (PVP) settlement. This process ensures that a transfer in one currency will be deemed successful only if the final transfer in the other currency has also occurred.
After the experiment, both central banks had released a report proposing alternative options for cross-border settlement as well as areas of research in blockchain platforms. The report called for central banks, financial institutions, and fintech companies to work together to drive businesses with DLT.
Additionally, a report published by the Bank for International Settlements disclosed that more than 40 central banks worldwide are interested in the concept of central bank digital currencies (CBDCs). However, real-world use may still be some time away in the future.
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