The Dunbar Project, an international settlement program led by the BIS Innovation Hub, has successfully developed working prototypes to prove the viability of the multi-CBDC concept. It is still too early to speculate on what this might mean for international regulations. However, if launched successfully, it could significantly challenge current international transaction providers like SWIFT.
Experience Proves Multiple CBDCs Could Enable International Settlements
The Dunbar Project, a technical experiment involving the Reserve Bank of Australia, the Central Bank of Malaysia, the Monetary Authority of Singapore and the Reserve Bank of South Africa, proved to be a success, proving that financial institutions can use CBDCs to transact on a shared network. Platform.
The joint effort began in 2021. According to a report by the Bank for International Settlements (BIS), the project has developed two prototypes for a shared platform that could enable international settlements using CBDCs issued by different central banks, which which was the first phase of the project. . The BIS said:
“This initial phase of the project successfully developed working prototypes and demonstrated practical solutions, achieving its goal of proving that the multi-CBDC concept was technically viable.”
The BRI argued that the need for such a system is felt because cross-border payments are currently very inefficient. For example, to make a single cross-border transfer, several banks may be involved. Each of these banks would have to record transactions on multiple ledgers on multiple systems built using different technologies, which helps to make transactions slower and more expensive.
Furthermore, the bank claimed that cross-border payments are currently not meeting user expectations for cheaper, faster and more transparent cross-border payments. This explains why the G20, an intergovernmental forum made up of 19 countries and the European Union, committed in 2020 to improving cross-border payments around the world.
Dunbar project developed using DLT Corda and Quorum platforms
In terms of design, the project encountered challenges related to governance, process and technology.
For a multi-CBDC platform shared by different central banks, governance is a key factor in properly assigning each participant the right number of privileges and access modes. First, participants will access the platform through nodes they host or nodes hosted by others. In addition, each participant would have a different level of access.
Technologically, the technical prototypes of the project were developed on two different DLT platforms: Corda and Quorum. Development of the Corda platform was led by technology provider R3 while development of the Quorum platform was led by Partior, an open industry platform.
Additionally, the prototype of R3 was deployed on Azure cloud infrastructure while Partior deployed its prototype on Amazon Web Services (AWS).
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Multi-CBDC payments to challenge traditional settlement methods like SWIFT
Unlike traditional payment settlement methods, which rely on intermediaries and correspondent banks, a multi-CBDC platform would allow participants to transact directly with each other using different CBDCs. This would significantly reduce the time needed for a settlement, thereby increasing speed.
Moreover, currently, a single cross-border transfer requires the updating of several registers on different systems, which makes the process cumbersome. However, because transfers are recorded on a single ledger on a multi-CBDC platform, the settlement process is simplified and costs are reduced.
It should also be noted that a multi-CBDC platform would reduce duplicate processes and automate operations through smart contracts. Additionally, using smart contracts, banks can also offer conditional payments, allowing customers to receive payment when predefined conditions are met.
In a nutshell, a multi-CBDC platform could be a game-changer for international settlements, given that it could significantly reduce costs and increase speed. Therefore, it can significantly challenge traditional financial transaction providers like SWIFT.
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About the Author
Ruholamin Haqshanas is an accomplished crypto and finance journalist with over two years of writing experience in the field. He has a solid understanding of various segments of the FinTech space, including the decentralized iteration of financial systems (DeFi) and the emerging non-fungible token (NFT) market. He is an active user of digital assets for remittances.