The BIS Innovation Hub and the South African Reserve Bank have announced the completion of a prototype system that allows international settlements to be made using central bank digital currencies.
The prototype system, dubbed 'Project Dunbar,' allows institutions to conduct direct transactions in central bank digital currencies, or CBDCs, while saving time and money.
The South African Reserve Bank said in a statement on Tuesday that this has the potential to reduce dependency on intermediaries and, as a result, the costs and time it takes to complete cross-border transactions (22 March).
The initiative also included the Reserve Bank of Australia, Bank Negara Malaysia, and the Monetary Authority of Singapore.
There is presently no single international platform for cross-border payments and settlements using CBDCs, unlike domestic payments, where banks may pay each other directly on a single national payments network.
The correspondent banking paradigm, in which banks keep foreign currency accounts with one another, is now in use. Numerous correspondent banks may be engaged in completing a single cross-border transfer, with transactions stored on multiple ledgers on multiple systems based on different technologies and communicating in different message formats.
Cross-border transfers are often slower, more opaque, and more costly than domestic payments due to this fragmented network.
A single cross-border payment may be routed via several correspondent banks, each of which holds foreign currencies. Each leg of the transaction requires time and effort to complete, with fees that soon mount up and are passed on to customers, resulting in delayed and expensive cross-border payments.
“Even though multi-CBDC research is still in its early stages,” said Rashad Cassim, deputy governor of the South African Reserve Bank. “Project Dunbar demonstrates the prospects of employing several CBDCs issued on a common platform for international settlement.”
“While many unknowns remain, and a number of areas require more examination, we can only truly contribute to the G20 plan for improving cross-border payments by gaining a global knowledge and going together.” We are honored to be a part of this groundbreaking project.
The South African Reserve Bank had already experimented with a digital currency for local usage as part of its Project Khoka initiative, which aimed to employ blockchain technology to speed up the country's payment operations.
