Central bank digital currencies (CBDC) have long been a hot topic in the world of digital finance. Recently, researchers with the New York Federal Reserve and Monetary Authority of Singapore (MAS) published a report suggesting that CBDC systems operating on different types of networks could be used for cross-border and cross-currency payments. This finding is part of the joint Project Cedar/Project Ubin research efforts by the New York Federal Reserve and MAS, and it could have far-reaching implications for the future of the global economy.
The report indicated that the research teams successfully conducted cross-border transactions across various distributed ledger (DLT) and hashed timelock contract (HTLC) technology stacks, resulting in near real-time settlement finality. However, it should be noted that the report specified this research was focused on technical issues, rather than any concrete decision to implement CBDCs or the underlying technologies.
The research concentrated on several crucial factors, such as interoperability, atomic settlement, and near real-time transaction settlement. To test their hypotheses, the researchers created eight different scenarios involving simulated CBDCs and hypothetical payments. Their experiments utilized hashed timelock contracts, a type of smart contract, to bridge ledgers with distinct underlying DLT systems, ultimately demonstrating that interoperability can be established across different technical designs.
The atomic settlement tests were particularly impressive, revealing an average of nearly 6.5 payments per second, with a peak of 47 payments per second. Furthermore, these end-to-end payments achieved an average latency of less than 30 seconds, which could be groundbreaking for cross-border transactions.
While these findings are undoubtedly promising, there are still concerns surrounding the implementation of CBDCs. For instance, their potential impact on less liquid currencies as well as the dependence on central banks to enable the interoperability of wholesale CBDCs deserves further consideration.
Despite these concerns, Michelle Neal, Head of the New York Fed’s Market Group, refers to cross-border payments as a “major railway” for the global economy. Leong Sing Chiong, MAS Deputy Managing Director, also expressed optimism stating that the Cedar x Ubin+ experiment envisions a future digital currency landscape where central banks can facilitate more efficient cross-border payment flows.
In conclusion, the recent findings presented by the New York Federal Reserve and MAS unlock intriguing possibilities in the realm of CBDCs and cross-border payments. Although challenges and uncertainties remain, advancements in this domain signify a potentially transformative shift in the global financial system.
Source: Coindesk
