The New York Federal Reserve published results from a joint study conducted with the Monetary Authority of Singapore (MAS).
Cross-border and cross-currency payments can effectively utilize Central Bank Digital Currency (CBDC) systems operating on diverse networks, the study shows.
The research, part of the Project Cedar/Project Ubin collaborative, demonstrates that distributed ledger tech (DLT) could support enhancements to cross-border multi-currency payments and settlements.
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Researchers examined interoperability and atomic settlement using simulated CBDCs and theoretical payments.
“Hashed timelock contracts, which are a type of smart contract, facilitated the successful integration of different DLT systems to carry out simulated cross-border and cross-currency transactions,” the report stated.
This demonstrated that interoperability can indeed exist between ledgers with different technical architectures.
Researchers designed eight distinct scenarios to verify their interoperability hypothesis.
In the atomic settlement tests, an average of nearly 6.5 transactions per second was observed, with a peak capacity of 47 payments per second.
These were end-to-end payments, and the average latency for payment was found to be under 30 seconds.
Michelle Neal, the Head of the New York Fed’s Market Group, says cross-border payments are a “major railway” for the global economy.
“Our joint research with MAS identifies critical opportunities for central bank innovation to ease global wholesale payment flows and enhance settlement outcomes,” she added.
MAS Deputy managing director Leong Sing Chiong explained that the Cedar/Ubin experiment anticipates a future in which central banks could allow the integration of wholesale CBDCs to streamline cross-border transactions, even for less frequently traded currencies, all without the need for shared infrastructure.
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Image courtesy of New York Fed