France and Singapore tested CBDC in cross-border wholesale payments

The Bank of France and the Monetary Authority of Singapore have successfully completed an experiment using a central bank digital currency (CBDC) for wholesale cross-border payments and settlements.

According to the press release, in tests conducted by Onyx from the JPMorgan group, simulations of transactions involving multiple digital currencies (m-CBDC) were modelled on a shared network between Singapore and France.

Cross-border payments are currently conducted on the basis of arrangements with correspondent banks, characterised by limited transparency of exchange rates, reliance on the operating hours of infrastructure participants and settlement delays due to time-zone differences.

To address these issues, the experiment used a common m-CBDC network designed to conduct cross-border payments in real time, 24/7.

The experiment modelled cross-border and cross-currency transactions for the Singapore dollar (SGD) and the euro (EUR) in the form of CBDC, and was carried out using a privacy-enabled private blockchain based on the Quorum technology.

The partners highlighted four key results from the test:

• Demonstrated interoperability between different types of cloud infrastructure;
• Designed a joint m-CBDC network enabling two central banks to oversee cross-border payments while preserving independent control over the issuance of their own CBDCs;
• Created an experimental m-CBDC network, including an automated liquidity pool and a market-making service for the EUR/SGD pair. Smart contracts automatically managed the exchange rate in real time according to the market;
• Modelling of the m-CBDC network demonstrated that the number of correspondent banks participating in the cross-border payment chain could be reduced. Accordingly, the number of contractual arrangements, the volume of KYC procedures, and the associated costs could be reduced.

The statement noted that the design of the m-CBDC network can be extended to support the participation of multiple central and commercial banks from different jurisdictions.

„This offers substantial potential to simplify integration and significantly enhance efficiency, since the current correspondent banking model relies on a single connection to a shared platform rather than several,“ the press release says.

The experiment was among the latest under Banque de France’s CBDC programme, which is due to conclude in autumn 2021.

Earlier, the Bank of France tested CBDC in cross-border settlements in collaboration with the Swiss National Bank and the BIS Innovation Hub.