On May 18, 2023, the New York Federal Reserve and the Monetary Authority of Singapore (MAS) jointly released the findings of their research study, titled Project Cedar Phase II x Ubin+. The initiative is part of the New York Innovation Center’s Project Cedar, which aims to establish a technical framework for a hypothetical wholesale central bank digital currency (CBDC) and contribute to the ongoing discourse surrounding CBDCs.
The first phase of Project Cedar demonstrated that the implementation of a wholesale central bank digital currency (CBDC) could enhance the speed and security of wholesale cross-border payments conducted via blockchain technology.
Ubin+ is an initiative led by the Monetary Authority of Singapore (MAS) aimed at enhancing the effectiveness of cross-border settlement using distributed ledger technology (DLT) and non-DLT financial networks.
In November 2022, the New York Federal Reserve and the MAS announced their collaboration to explore the potential of wholesale CBDCs (wCBDCs) in improving the efficiency of cross-border, multi-currency payments.
The Project Cedar Phase II x Ubin+ research study investigated the potential of distributed ledger technology (DLT) in enhancing the efficiency of cross-border wholesale payments and settlements that involve multiple currencies.
As per the Project Cedar Phase II x Ubin+ report, the study was conducted with the objective of promoting innovation in the financial industry and not supporting any particular policy outcome. Furthermore, the study was not intended to suggest any immediate decisions regarding the suitability of issuing a central bank digital currency (CBDC) or to provide any indication regarding the design of such a currency.
The research study tested several hypotheses with the objective of determining whether wholesale central bank digital currency (CBDC) systems developed using distributed ledger technology (DLT) could achieve technical interoperability with other payment systems across varying jurisdictions, enable cross-border payments in currency corridors with limited liquidity, and reduce the processing time of cross-border, cross-currency payments initiated in different jurisdictions.
The findings of Project Cedar Phase II x Ubin+ indicate that payments can be securely conducted across multiple ledgers without the need for a central clearing authority or the creation of a shared central network. Additionally, the study revealed that simulated payments could be settled atomically, in near real-time, effectively mitigating concerns related to counterparty risks.
Furthermore, Project Cedar Phase II x Ubin+ demonstrated that distributed ledger technology (DLT) could facilitate improvements to cross-border multi-currency payments and settlements, particularly with regard to network interoperability, autonomy, settlement, and speed. However, the study acknowledged that alternative technical designs, aside from DLT, may also present viable solutions.
Michelle Neal, the Head of the Markets Group at the New York Federal Reserve, emphasized the significant role of cross-border payments in facilitating the operations of the global economy.
The research study identified several areas that warrant further experimentation and analysis, such as the feasibility of network scalability, the inclusion of additional currencies supported by their respective central bank ledgers, and the optimization of privacy limitations and liquidity.
#NewYorkFederalReserve #CBDC #BlockchainTechnology
