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Joint New York Fed, MAS Project Demonstrates Potential of Distributed Ledger for Payments

2 mins
Updated by Kyle Baird
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In Brief

  • Joint experiment by New York Fed and MAS demonstrates the potential of DLT for payments.
  • The experiment focused on pain points related to interoperability, settlement, and speed.
  • CBDC development scaling globally, while concerns about privacy arise.
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The Federal Reserve Bank of New York’s New York Innovation Center (NYIC) and the Monetary Authority of Singapore (MAS) released a research report on CBDC cross-border payments on May 19.

The joint project, dubbed ‘Cedar x Ubin+,’ examined how distributed ledger technology (DLT) may be used for international wholesale payments.

The Experiment Found DLT Effective

The study covered several different currencies. It showed that DLT could address key pain points related to network interoperability and autonomy, settlement, and speed.

The experiment used digital currencies from a simulated wholesale central bank in a test setting. Michelle Neal, Head of the Markets Group at the New York Fed, highlighted the opportunity for central bank innovation. Neal believes it could ease wholesale payment flows globally and improve settlement outcomes.

The report suggested opportunities for future research, such as examining the network solution’s scalability for handling transaction volumes at scale and incorporating more currencies supported by their respective central bank ledgers.

Last month, the central banks of Singapore and Malaysia also introduced a cross-border payment connection. It established a CBDC link between the two neighboring countries.

The Key Findings of the Project

The experiment primarily focused on:

Interoperability and Autonomy: The experiment connected various currency ledgers maintained by central banks, enabling payments to be securely conducted across many ledgers without requiring a shared central network or a central clearing body.

Atomic Settlement: Simulated payments were settled in an atomic manner, ensuring that transactions would only be completed when all cross-currency payment chains were completed. This boosted certainty and decreased settlement risks.

Near-Real-Time Settlement: Each simulated payment scenario completed end-to-end settlement, on average, in less than 30 seconds, giving participants prompt confirmation of a successful transaction.

Leong Sing Chiong, Deputy Managing Director (Markets & Development) at MAS, focused on a world of digital currencies in which central banks permit interoperability for less liquid currencies without necessitating a shared infrastructure.

Meanwhile, The Cedar x Ubin+ report disclaimed that it does not advocate or signal imminent decisions regarding the issuance of central bank digital currencies.

CBDC Development Scaling

The study’s publication also coincides with Ravi Menon’s reappointment as the managing director of the MAS. He got another second two-year term after he had held the position for 12 years. Until May 31, 2025, Menon will remain in his role and serve on the MAS board.

The CBDC innovation is growing in the meantime. Ripple recently disclosed that it had improved its CBDC platform and is collaborating on CBDC initiatives with over 20 nations. Ripple is collaborating with the Republic of Palau and the Central Bank of Montenegro. It noted that the countries would customize retail digital currencies to their citizens’ requirements.

On the other hand, some people are concerned about how using CBDCs could compromise consumers’ privacy. Many people in the U.S., where the criticism has been most pronounced, think that tracking digital transactions could lead to abuses of power, such as pursuing political dissidents or keeping tabs on residents’ spending patterns.

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Shraddha Sharma
Shraddha is an India-based journalist who worked in business and financial news before diving into the crypto space. As an investment enthusiast, she has also has a keen interest in understanding crypto from a personal finance standpoint.