The Monetary Authority of Singapore (MAS) has disclosed its intent to improve the state of cross-border transactions in Southeast Asia and the wider world. The banking regulator made this known through a speech given by Managing Director Ravi Menon at a symposium organized by the Society for Worldwide Interbank Financial Telecommunications (SWIFT).
In his speech, Menon noted that cross-border payments are blighted by several issues, the most significant being the speed of settling transactions and the high costs associated with remittances. He added that the global average for sending remittances is 6.4% of the transfer value, claiming that the state of the industry is “not fit for the 21st century.”
Menon suggests using a multi-central bank digital currency (multi-CBDC) common platform as a way around the present limitations. He argues that the multi-CBDC would use blockchain, which will serve as a settlement layer for the financial institutions in the system.
“In such a network, participating commercial banks will be able to transact with foreign counterparties without going through correspondent banks,” said Menon. “They do this by exchanging directly with one another the CBDCs they have been issued, thereby reducing settlement time and cost,” he added.
Aside from using multi-CBDC, the Managing Director of MAS considered linking up faster payment systems but noted that bilateral linkages might be difficult and expensive to execute. He added that even if the link is successfully implemented, it only solves the problem of cross-border transactions and not settlements.
The Bank of International Settlement is exploring multi-CBDCs
The use of DLT for multi-CBDCs appears to be the most viable solution for solving the debacle of cross-border payments. Given the prospects, the Bank for International Settlements (BIS) Innovation Hub has made significant progress in experimenting with multi-CBDCs since the start of the year.
Project mBridge, a pilot involving the central banks of Hong Kong, Thailand, China, and the United Arab Emirates (UAE), was recently concluded with relative success, with over $22 million worth of transactions among participating banks.
The BIS Innovation Hub is also attempting to replicate the experiments with Sweden, Norway, and Israel in a new pilot called Project Icebreaker, while Project Jura, an attempt to explore the transfer of the euro and Swiss Franc between commercial banks, has reached an advanced stage.
“This first-of-a-kind experiment will dig deeper into the technology, architecture, and design choices and trade-offs, and explore related policy questions,” remarked Beju Shah, head of the BIS Innovation Hub Nordic Center.
Watch: The BSV Global Blockchain Convention presentation, CBDCs and BSV
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