The Monetary Authority of Singapore (MAS) and the Bank of Canada (BoC) announced on Thursday that they have successfully test-run a series of cross-border, cross-currency payments using blockchain technology.
Interestingly, the two central banks also carried out those transactions using their own digital currencies.
Both the BoC and MAS had already built their own blockchain payment networks prior to the test run. The Canadian blockchain payments system is known as Project Jasper. Similarly, the MAS named its blockchain payments network Project Ubin.
According to a joint statement released by the MAS, the central banks were able to connect using hashed time-locked contracts (HTLC) – a system used by some blockchain networks aimed at reducing counterparty risk.
The two central banks were supported in their endeavors by consultancy firm Accenture and investment banking giant JP Morgan.
In a report published alongside its announcement, the MAS noted that the system used to send money between Project Ubin and Project Jaspar might be difficult to scale.
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“The proof of concept was tested with a limited number of participants on each network, and we assumed that each participant would be able to transfer directly to any other participant in the other network,” says the report.
“In a real-world scenario where there are hundreds to thousands of participants on each network, with tens to hundreds of inter-connected networks, such a model is untenable due to the complexity and scalability challenges.”
To combat these problems, the MAS and BoC suggest a number of remedies. Creating a centralized connector between networks, for example, or having an additional blockchain to establish connections between different networks.
Regardless of any problems the two central banks may have faced, Thursday’s announcement illustrates that blockchain is making some headway in traditional financial institutions.
And, given the level of work that is being put into the making the technology work, it’s likely that we’ll only see more uptake of blockchain-based systems.
“[Project Ubin and Project Jaspar] have addressed many technical questions and brought [blockchain] technology to a higher level of maturity,” said Sopnendu Mohanty, the MAS’ chief fintech officer.
“The next wave of central bank blockchain projects can make further progress by bringing technology exploration together with policy questions about the future of cross-border payments.”