Project Cedar is a joint initiative between the New York Federal Reserve and MAS exploring the technical viability of multilateral CBDC blockchain platforms to improve cross-border payments
On Friday (May 19), the New York Federal Reserve’s New York Innovation Center (NYIC) and the Monetary Authority of Singapore (MAS) published the results of the joint Project Cedar Phase II x Ubin+, which investigates the use of distributed ledger technology (DLT) to improve the efficiency of cross-border multicurrency wholesale payments and settlements.
The study found that multilateral platforms with central bank digital currencies (CBDCs) may improve cross-border payments by transforming foreign exchange transactions, risk sharing and financial contracting.
Phase II of the project was carried out in a test environment where payments were settled via simulated wholesale CBDCs. The payment experiments confirmed the initial hypotheses relating to cross-border CBDC interoperability, speed, and atomic settlement.
In particular, Leong Sing Chiong, deputy managing director (markets and development) at MAS, noted that interoperability of wholesale CBDCs can facilitate more efficient cross-border payment flows leading to less liquid currencies, without necessarily requiring a common infrastructure.
At present, cross-border transactions rarely use emerging market economy (EME) currencies, as they have lower liquidity and higher volatility. Therefore, illiquid cross-border currency pairs continue to face limitations, including high costs, slow settlement times, lack of access to market solutions, and limited transparency.
To solve that issue, New York Fed and MAS have experimented with CBDC vehicles able to bridge currency pairs that are not widely traded. By establishing interoperable connectivity across nation-specific heterogeneous simulated currency ledgers, the project research discovered it was possible to both reduce settlement risk and decrease settlement time.
Such a settlement model enables cross-border, multi-currency payments while maintaining the independence of the respective central bank infrastructures.
Various other projects across the globe are testing CBDC prototypes suitable for cross-border use. These include the joint initiative of UAE and India, the experiment of BIS and central banks of France, Singapore and Switzerland with trading and settlement using DeFi AMM protocols, and International CBDC by the International Monetary Fund.