Asian central bank digital currency test cut cross-border transfer times 'from days to seconds'

Prototype run by China, Hong Kong, Thailand, and UAE also cut costs in half

A trial of cross-border payments using central bank digital currencies (CBDCs) delivered "a substantial improvement in cross-border transfer speed from multiple days to seconds" according to a report on the experiment.

The report [PDF] considers phase two of Project Inthanon-LionRock (IL2), the cross-border experiment announced in February 2021 by China, Thailand and the United Arab Emirates, along with the Hong Kong Monetary Authority and the Bank for International Settlements Innovation Hub.

The test used Hyperledger Besu, an Ethereum client capable of using several consensus algorithms. It assumed that participants would use a common messaging standard and sign up to a common set of compliance standards as a prerequisite to participation.

Infrastructure for the test was deployed as containers, then managed with Docker and Kubernetes. The prototype rig ran in Amazon Web Services, on T3 instances, and used the CloudFront content delivery network to connect banks. Kubernetes' automated deployment features were utilised to help with disaster recovery.

Participants used three layers of infrastructure:

  1. The core layer contained the blockchain ledger, where data persists and the smart contract logic that implements functionality is programmed;
  2. A backend application layer provided identity, access, and routing functions into layer 1, along with wallet signing, key management, and off-ledger FX services;
  3. A front-end layer provided an interface into the core systems and could be adapted for different devices or to delivery different functionality to users as appropriate.

The report details the workings of the rigs in considerable detail, but the big takeaway is: it worked, at speed, and low cost.

"The results of IL2 estimate an approximate 80 per cent reduction in transaction time," the document states. "There is currently a 3–5 day delay between payment and settlement for a typical cross-border transaction processed via correspondent banking.

"The IL2 prototype demonstrates the potential to shorten these transactions from days to seconds."

That's not just significant because it's fast. The report notes that another effort to reduce cross-border payment times – SWIFT gpi – can exchange messages in under five minutes and clear 92 per cent of payments within 24 hours.

But IL2 participants expect SWIFT gpi transactions "could experience half to a full day delay at each intermediary correspondent bank".

The peer-to-peer tech used in this trial reduced transaction times to between two and ten seconds.

It also reduced the cost of cross-border transfers by an estimated 50 per cent.

CBDCs are still largely experimental, as central banks weigh how to create and regulate a digital currency that, like cash, can be exchanged without an intermediary. Just one nation – The Bahamas – has launched a CBDC, although over a dozen pilots are under way and many nations have begun to study the concept.

The participants in this trial are happy to help: their report concludes by stating they "look forward to continuing to contribute to the international dimension of this work, including by welcoming more central banks to our agile and experimentation driven journey founded on the principles of do no harm, compliance and interoperability." ®

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