The Bank for International Settlements (BIS) Innovation Hub collaborated with central banks from Australia, Malaysia, Singapore, and South Africa to develop prototypes of two versions for an international settlement platform that uses different central bank digital currencies (CBDCs).
According to the executive summary of the report, the project’s first phase was successful in developing functioning prototypes and demonstrating practical solutions, meeting its goal of demonstrating that the notion of multi-CBDCs was technically realistic.
Project Dunbar is the name of the collaboration. It focuses on how, as detailed in that paper, a shared platform including numerous CBDCs could aid enable cross-border payments “cheaper, faster, and safer.”
Project Dunbar, led by the Innovation Hub’s Singapore Centre, established that financial institutions may use CBDCs granted by participating central banks to interact directly with each other on a shared platform, according to a press release, on 22 March 2022, from the BIS. The release further articulated,
“This has the potential to reduce reliance on intermediaries and, correspondingly, the costs and time taken to process cross-border transactions.”
The project was divided into three work streams: one for high-level functional requirements and design, and two parallel technical streams for prototyping on various technological platforms (Corda and Partior).
Key challenges emphasized in the BIS report
When it comes to settling transactions using a shared platform, the BIS collaborated research identified three major problems. The first concern is regarding the issues of access to the platform’s CBDCs, like whether banks should be able to utilize CBDCs from nations where they do not have a presence. Another problem was figuring out how to make cross-border payments as simple as possible while yet adhering to each country’s standards. Finally, the third problem was devising a governance framework that would allow countries to share their payment facilities while also taking national security concerns into account.
Enabling entities to directly hold and conduct business in CBDCs from different jurisdictions, according to Michele Bullock, assistant governor at the Reserve Bank of Australia, could reduce the desire for intermediaries in cross-border payments, but it would have to be done in a way that conserves the security and resilience of these payments.
While there is still more work to be done in terms of thinking about the viability and design of multi-CBDC platforms, Bullock believes Project Dunbar’s findings give a sound foundation for future research in this area.