The Monetary Authority of Singapore (MAS) has revealed its intention to improve the state of cross-border transactions in Southeast Asia and the rest of the world. The banking regulator made this known through a speech delivered by Chief Executive 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 marred by several issues, the most important being the speed of settlement of transactions and the high costs associated with remittances. He added that the global average for sending remittances is 6.4% of the transfer value, saying the state of the industry is “not fit for the 21st century”.
Menon suggests using a common multi-bank digital currency (multi-CBDC) platform to circumvent the current limitations. He argues that the multi-CBDC would use the blockchain, which will serve as the 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,” Menon said. “They do this by exchanging the CBDCs issued to them directly with each other, thereby reducing settlement time and costs,” he added.
Besides using multiple CBDCs, the MAS CEO considered linking faster payment systems, but noted that bilateral links could be difficult and expensive to run. He added that even if the link is successfully implemented, it only solves the problem of cross-border transactions and not settlements.
The Bank for International Settlements explores several CBDCs
Using DLT for multi-CBDCs is emerging as the most viable solution to solving the cross-border payments debacle. Given the outlook, the Bank for International Settlements (BIS) Innovation Hub has made significant progress in experimenting with multi-CBDCs since the start of the year.
The mBridge project, a pilot project involving the central banks of Hong Kong, Thailand, China and the United Arab Emirates (UAE), recently concluded with relative success, with more than $22 million in transactions between the banks participants.
The BIS Innovation Hub is also trying to replicate experiences with Sweden, Norway and Israel in a new pilot project called Project Icebreaker, while Project Jura, an attempt to explore the transfer of the euro and Swiss franc between the commercial banks, has reached an advanced stage organize.
“This one-of-a-kind experience will delve into choices and trade-offs in technology, architecture and design, and explore related policy questions,” remarked Beju Shah, Head of BIS Innovation Hub Nordic Center.
Watch: The presentation of the BSV Global Blockchain Convention, CBDC and BSV
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