In conjunction with the Bank for International Settlements (BIS) Innovation Hub, the Reserve Bank of Australia, Bank Negara Malaysia, and the Monetary Authority of Singapore, the South African Reserve Bank has announced the development of an experimental platform for settling multiple central bank digital currencies, or CBDCs, on an international basis.
The project, officially called Project Dunbar, would provide platforms for cross-border CBDC transactions, allowing financial institutions to deal directly with one another in central bank-issued digital currencies, removing the need for intermediaries and decreasing transaction time and cost.
Rashad Cassim, deputy governor of South Africa’s central bank said “After years of mostly domestic research and exploration, we are very pleased to see that these common insights about the need to explore cross-border CBDC payments and interoperability are coming together internationally,”
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“The platform was designed to facilitate direct cross-border transactions between financial institutions in different currencies, with the potential to cut costs and increase speed,” the Banks said in a joint statement on Tuesday.
“The project identified challenges of implementing a multi-CBDC platform shared across central banks and proposes practical design solutions to address them.”
Project Dunbar : What to know about CBDC
A CBDC is a virtual representation of a country’s or region’s base currency in digital form. The future of currency is in doubt as the world moves toward digital payments and cryptocurrencies and stable coins gain in popularity, prompting central banks throughout the globe to contemplate using the technology in their respective jurisdictions. CBDCs, on the other hand, pose challenges in terms of accessibility, privacy, and the model to be used in their implementation.
According to a tracker maintained by the Atlantic Council think tank, 10 countries in Africa are examining the viability of CBDCs, with the majority of them still in the research stage. CBDCs have the potential to play a significant role in the continent’s massive remittance market by lowering transaction costs.
The CBDC Phases
According to the report, The project was organized along three workstreams: one focusing on high-level functional requirements and design, and two concurrent technical streams that developed prototypes on different technological platforms (Corda and Partior). And the project identified three critical questions: which entities should be allowed to hold and transact with CBDCs issued on the platform? How could the flow of cross-border payments be simplified while respecting regulatory differences across jurisdictions? What governance arrangements could give countries sufficient comfort to share critical national infrastructure such as a payments system?
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During the course of the project, realistic solutions to these difficulties were suggested and verified via the creation of prototypes that proved the technological feasibility of shared multi-CBDC platforms for international settlements.
Andrew McCormack, Head of the BIS Innovation Hub Centre in Singapore said “A common platform is the most efficient model for payments connectivity but is also the most challenging to achieve. Project Dunbar demonstrated that key concerns of trust and shared control can be addressed through governance mechanisms enforced by robust technological means, laying the foundation for the development of future global and regional platforms,”
The project’s findings also affirmed that any such arrangement should be subject to the governance deemed appropriate by central bank participants, including allowing them to retain control of the application of rules on a jurisdictional and currency level
“A common platform is the most efficient model for payments connectivity but is also the most challenging to achieve. Project Dunbar demonstrated that key concerns of trust and shared control can be addressed through governance mechanisms enforced by robust technological means, laying the foundation for the development of future global and regional platforms,” said Andrew McCormack, Head of the BIS Innovation Hub Centre in Singapore.
“The successful completion of Project Dunbar has produced meaningful insights on how a multi-CBDC platform may potentially solve complex issues in the cross-border payment space. The project is a testament to the importance of central bank collaboration in supporting the development of next-generation payment infrastructures. We intend to carry these insights through other proofs-of-concept as we continue our CBDC exploration journey,” said Fraziali Ismail, Assistant Governor, Bank Negara Malaysia.
Furthermore, Rashad Cassim, Deputy Governor, South African Reserve Bank affirmed “Even though multi-CBDC exploration is in its infancy, Project Dunbar highlights the possibilities of using multiple CBDCs issued on a shared platform for international settlement. While many unknowns remain, and a number of areas still require further investigation, it is only through our collective understanding and journeying together that we can meaningfully contribute to the G20 roadmap for enhancing cross-border payments. We are privileged to be part of this pioneering piece of work,”
