Blockchains and Central Banks – What Have We Learnt?:
For the past two years, R3 has been working closely with several central banks to investigate whether distributed ledgers can support their policy objectives, and I have been privileged to be involved in many of these projects.
What have we learned? What is important? What are central banks concerned about? Although I could not speak directly on behalf of individual organizations, I have gathered my ideas and want to share them at the FinTech Festival in Singapore (Nov. 13-17), when the results of the “Project Ubin” experiments will be in Singapore. . . announced.
The Jasper Project is an initiative of R3, Bank of Canada (central bank), Payments Canada (cleaning and settlement infrastructure), CIBC, TD Bank, Scotiabank, Bank of Montreal, Royal Bank of Canada, National Bank of Canada, and HSBC.
Jasper wants to understand how DLT technology can change the future of payments, starting with valuations and regulations.
Jasper Phase I
Phase I runs from March to June 2016. A blockchain prototype was built to investigate the use of digital receipts issued by the central bank to support interbank settlement. The receipt of funds at the central bank is based on a distributed ledger and can be transferred to participants. The project examined the ability of distributed ledgers to support and comply with international payment systems standards, known as the Financial Market Infrastructure Principles (PFMI), as defined by the Bank of Payments’ International Payments and Market Infrastructure Committee ( CPMI). .) represent countries from all over the world that, together, represent around 95% of the world’s GDP.
Phase I is recognized as one of the most productive experiences in Bank of Canada history.
Jasper Phase II
In May 2017, Phase II was announced at the Canadian Payments Summit.
Phase II of the project had two main differences compared to Phase I. It was built on the R3 Corda platform and includes a liquidity-saving mechanism that allows banks to settle payments more effectively.
The Ubin project is an initiative by the Monetary Authority of Singapore (MAS) to investigate the applicability of distributed reporting technology to Singapore’s financial ecosystem. Unlike the institution in many other countries, the MAS has multiple functions and acts as a central bank, regulator, and agent for ecosystem development.
Phase I participants include Bank of America Merrill Lynch, BCS Information Systems (Technology Infrastructure), Credit Suisse, DBS Bank, HSBC, JP Morgan, Mitsubishi UFJ Financial Group, OCBC Bank, Singapore Exchange, United Overseas Bank.
Phase I was successfully completed on March 9, 2017, with the aim of producing a digital representation of the Singapore dollar for interbank clearing, test methods for connecting banking systems to a DLT, and connecting to the system interface. MA electronic payment. with DLT for automatic warranty management.
The Phase I report, of which I am co-author, was published in May 2017, entitled “Project Ubin: SGD in a Distributed Ratio” and describes the prototype developed.
Phase II of Ubin is led by (MAS) and the Singapore Bank Association (ABS). It is managed and provided by Accenture, with a consortium of eleven financial institutions in Singapore: Bank of America Merrill Lynch, Citi, Credit Suisse, DBS Bank, HSBC, JP Morgan, Mitsubishi UFJ Financial Group, OCBC Bank, Singapore Exchange, Standard Chartered Bank, and United Overseas Bank.
Phase II started in June 2017 and aims to explore the capabilities of three different DLT platforms: Fabric (supported by IBM), Quorum (supported by JP Morgan), and Rope (supported by R3). The specific use case is a decentralized real-time gross settlement (RTGS) system, which includes the ability of the decentralized network to use liquidity-saving mechanisms and preserve the privacy of interbank payments, something that has rarely been explored before.
Additional work may include “delivery against payment” fixed income securities and international payments using the central bank’s digital currency.
The LionRock project was announced on March 27, 2017, and builds on what R3 has learned from previous central bank projects. LionRock uses an interbank payment system and extends it to bond issuance, lifecycle, and payment delivery. In addition, LionRock benefits from the fact that businesses (not just banks) can maintain this digital framework and thereby increase access to central bank balances to facilitate inter-company payments. The current phase is expected to be completed in the fourth quarter of 2017.
What have we learned?
If there’s one thing I’ve personally learned from countless hours of central bank commentary, it’s that different central banks have different motivations and priorities for using distributed reporting technology. Diversity is great: priorities range from addressing local corruption issues, providing an alternative central bank for physical cash or bank deposits, upgrading legacy systems burning platforms, researching and promoting international monetary relevance.
What are the similarities?
From the projects described in this article, we learn that central banks are interested in the potential of distributed ledgers to increase the systemic resilience of domestic payment systems, including real-time gross settlement systems.