In the first such trial between two central banks, the BoC and the Monetary Authority of Singapore (MAS) conducted a successful experiment on cross-border and cross-currency payments using central bank digital currencies.
The two central banks successfully linked up their respective experimental domestic payment networks, namely Project Jasper and Project Ubin1, which are built on two different distributed ledger technology platforms.
The project teams used a technique called Hashed Time-Locked Contracts (HTLC) to connect the two networks and allow Payment versus Payment2 settlement without the need for a trusted third party to act as an intermediary.
After the project was completed, the BoC and MAS published a report that proposes different design options for cross-border settlement systems and describes the technical implementation of HTLC and highlights possible limitations and challenges with the implementation model.
Scott Hendry, Bank of Canada Senior Special Director, Financial Technology, said:
“The world of cross-border payments is complicated and expensive: our exploratory journey into the use of DLT to try to reduce some of the costs and improve traceability of these payments has yielded many lessons. The importance of international cooperation through projects such as this one cannot be underestimated. Only through continued collaboration and fundamental research will it be possible for this technology to mature and for policy-makers to fully understand its potential.”