The Federal Reserve Bank of New York has entered a partnership with the Monetary Authority of Singapore (MAS) to test the potential of wholesale central bank digital currency (CBDC) for cross-border payments.
The Fed entered the partnership with MAS through the New York Innovation Center (NYIC) according to the announcement made on November 11.
Together, both organizations will jointly carry out experiments on the project dubbed “Project Cedar Phase II x Ubin+” to solve settlement risks associated with cross-border payments, especially with the use of multiple currencies.
Interestingly, the partnership continues both central banks’ individual research efforts regarding wCBDC. NYIC just recently completed the first phase of Project Cedar which explored the use of wCBDC for faster settlement.
As per the result of the first phase, payments could be settled in less than 15 seconds and transactions were completed either simultaneously or not at all using the simulated ledger network. This drastically reduces the risk of cross-border payments.
On the other hand, MAS also launched Project Ubin+, to examine the use of wCBDC for cross-border payments
Targets of the CBDC Experiment
Using a practical approach, the experiment will look to enhance designs for atomic settlement of cross-border cross-currency transactions, leveraging wCBDCs as a settlement asset. To achieve this, Project Cedar Phase II x Ubin+ will establish connectivity across multiple heterogeneous simulated currency ledgers.
Additionally, the experiment will offer further insights into the functionality and interoperability of multi-currency ledger networks utilizing their own unique designs. Although the experiment is not intended to project any policy outcome or insinuate the Federal Reserve will take any imminent decisions regarding the issuance of CBDCs, the results of the collaborative effort will be released in 2023.
Summarily, the project which is a contribution towards discussions on CBDCs is targeted at scaling the interoperability and connection of wholesale digital currencies.
Recall that Federal Reserve Chairman Jeremy Powell shared four qualities a CBDC must possess even though the Fed is still undecided on whether to move forward with a CBDC. The Fed is still weighing the advantages and disadvantages of the CBDC to the American economy.