It looks like central banks around the globe are more interested in the idea of their own digital currencies instead of using any readily available crypto like Bitcoin. Yesterday the Central Banks of Singapore and Canada confirmed that they’ve completed their first blockchain-based transaction with help of digital currencies developed by them internally. Though the news is huge if seen from the perspective of blockchain’s acceptance, it also has a hidden message from central banks that they’re not going to trust truly decentralized blockchains and cryptocurrencies for the purpose of their transactions.
The Monetary Authority of Singapore (MAS) and Bank of Canada were jointly working on blockchain and Distributed Ledger Technology (DLT) since last few months. So when they sent funds to each other using their own digital currencies without any trusted 3rd party, it was to test if their efforts were leading them in the right direction. The transactions were completed by linking two DLT networks: Project Ubin of MAS and Project Jasper of BoC. Both these platforms had been developed with the help of JPMorgan and Accenture. They also had a role to play in the completion of transactions done yesterday.
Announcing the success of this trial MAS Chief Fintech Officer Sopnendu Mohanty said:
“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. It is challenging work, and we welcome other central banks to join us in this global collaboration, to bring benefit to consumers, businesses and the broader financial industry.”
Scott Hendry, Senior Special Director, Bank of Canada, said:
“The world of cross-border payments is complicated and expensive: our exploratory journey into the use of DLT to try to reduce some of the costs and improve traceability of these payments has yielded many lessons. The importance of international cooperation through projects such as this one cannot be underestimated. Only through continued collaboration and fundamental research will it be possible for this technology to mature and for policy-makers to fully understand its potential.”
The purpose of both these banks behind adopting blockchain technology is same: increasing efficiency, and cutting costs. In a summary report of the transaction published after its success the findings reveal that the system developed by these banks is very good at ensuring end-to-end consistency of transaction. The summary states:
“In our tests, no other action would proceed if any action fails, thus ensuring the end to end consistency of a transaction. In the correspondent banking method of payment, the sender and receiver trust the correspondent bank. In this DLT-based system using HTLC, trust will still be required, albeit in the technical system rather than in a third party.”
MAS is currently targeting 2020 as the deadline for putting Project Ubin into action. Let’s see how much the world of finance changes after that, because MAS and BoC are two of the most important central banks in the world.