The Monetary Authority of Singapore (MAS) recently announced Project Cedar Phase II x Ubin+, a joint experiment with the Federal Reserve Bank of the New York Innovation Centre (NYIC). The project explores how wholesale central bank digital currencies (wCBDCs) could improve the efficiency of cross-border wholesale payments involving multiple currencies.
Wholesale cross-border payments are transactions between central banks, private sector banks, or institutions based in separate jurisdictions. Among the most common wholesale cross-border payments are foreign exchange (FX) spot trades. It typically takes about two days for an FX spot transaction to settle. During this time, counterparties are exposed to settlement risk and credit risk that can disrupt an institution’s ability to access liquidity.
Project Cedar aims to improve the overall efficiency of these payments. According to a government press release, the project will establish connectivity across multiple heterogeneous simulated currency ledgers. It intends to develop a technical framework for a theoretical wCBDC in the Federal Reserve context. It will advance global efforts to evaluate the benefits of wholesale CBDCs and help build capabilities for an open and interoperable financial infrastructure in the future.
The project takes a practical approach and designs for any future wholesale CBDC to be interoperable across networks while maintaining each network’s autonomy, Leong Sing Chiong, Deputy Managing Director at MAS, stated.
Ubin+ is MAS’ collaborative initiative with international partners to improve the efficiency and reduce the risks of cross-border foreign exchange settlement, by advancing cross-border connectivity and interoperability of wholesale digital currencies.
Phase I
In a simulated wholesale FX spot transaction, Project Cedar developed a wholesale central bank digital currency prototype to test blockchain technology for payments. The project developed a distributed ledger infrastructure—a multi-ledger construct in which each currency was maintained on a separate ledger, operated by its respective simulated central bank. The Phase I prototype included design choices such as a permissioned blockchain network, utilising an Unspent Transaction Output (UTXO) data model, and Rust as the primary programming language.
Ultimately, Phase I demonstrated that blockchain technology improves the speed, cost, and access to a critical element of the wholesale cross-border payments market – an FX spot transaction.
Phase II
Using wCBDCs as a settlement asset, Project Cedar Phase II x Ubin+ will improve designs for atomic settlement of cross-border, cross-currency transactions. Building off Phase I, the project will provide further visibility into the functionality and interoperability of multi-currency ledger networks utilising their own unique designs, explained Michelle Neal, Head of the Markets Group at the New York Fed.
The Project Cedar Phase II x Ubin+ experiment will not advance any specific policy outcome, nor is it intended to signal that the Federal Reserve will make any decisions about the appropriateness of issuing a retail or wholesale CBDC, the governments have noted. A report detailing the experiment and findings of Project Cedar Phase II x Ubin+ will be released in 2023.
