BIS finds CBDC-blockchain combo outclasses correspondent banking

The Bank of International Settlements (BIS) has said central bank digital currencies (CBDCs) combined with a blockchain infrastructure could lead to faster money transfers.

BIS says its project will now be explored for limitations

The findings come from the multiple CBDC bridge project (mBridge). It combines the monetary authorities of Hong Kong, Thailand, China and the United Arab Emirates.

mBridge group members created a prototype which it says can reduce the time for international transfers to seconds, compared to days using traditional correspondent banking networks.

The prototype is built on the Ethereum Hyperledger Besu blockchain. Participants will now work to develop a production-ready digital currency solution, according to the BIS report.

Benoît Cœuré, head of the BIS Innovation Hub, says the prototype is “part of our efforts to design CBDC technology”.

He adds: “The project includes experimenting with use cases and trials, balanced with analysis of governance, policy and legal considerations with a focus on cross-border use.”

mBridge builds upon the initial investigation by the central banks of Hong Kong and Thailand in Project Inthanon-LionRock. China has added its experience in the rollout of the e-CNY pilot.

UAE experts contributed learnings from their integration of a single-currency blockchain solution with Saudi Arabia.

According to BIS, the project will continue to explore existing limitations of the current platform related to privacy controls, liquidity management, scalability and performance.

The project’s next phases are expected to include trials in controlled environments with commercial banks and other market participants.

“Enabling faster and cheaper cross-border wholesale payments, including to jurisdictions that don’t benefit from a vibrant correspondent banking system, would be positive for trade and economic development,” says Bénédicte Nolens, head of the BIS Innovation Hub in Hong Kong.

“mBridge investigates these public good outcomes through a new DLT payment infrastructure that sits at the crossroads of participating central banks.”