The Federal Reserve Bank of New York has announced a new partnership with the Monetary Authority of Singapore (MAS) in an effort to examine the possibility of using Central Bank Digital Currencies (CBDC) to conduct international wholesale payments involving many currencies.
The collaboration will involve carrying out a set of experiments referred to as “Project Cedar Phase II x Ubin +” to determine the viability of using CBDCs for wholesale global payments. The experiment will be expected to leverage wholesale CBDCs for cross-border transactions which are aimed at reducing the risk associated with doing such transactions which is a major source of friction in cross-border transactions using different currencies.
Project Cedar is a multiphase research effort that attempts to advance an open and transparent public discussion regarding CBDC from a technical standpoint.
It develops a theoretical wholesale CBDC technical framework within the context of the Federal Reserve. According to the report, Phase I of Project Cedar has discovered that a wholesale CBDC model might speed up and secure cross-border wholesale payments by facilitating transactions backed by blockchain technology.
The Deputy Managing Director of Markets and Development at MAS, Leong Sing Chiong stated that the project will support the development of capabilities for an open and interoperable financial infrastructure in the future.
The Federal Reserve Bank and its Contribution to Developing CBDC
The Federal Reserve issued a report in November where Michelle Neal, NY Fed Executive Vice President and Head of Markets stated that the Federal Reserve has not yet issued a CBDC and there are no plans to do so at the moment but believes the continuous study will improve knowledge of the advantages and disadvantages of a CBDC.
Therefore, the Federal Reserve is actively looking into the technological aspects of both the retail and wholesale CBDC designs.
Besides the United States and Singapore, The Reserve Bank of New Zealand had also made attempts to develop the CBDC to preserve cash for the benefit of those that will benefit from them.
In 2020, Christian Hawkesby, assistant governor, spoke at the Royal Numismatic Society of New Zealand’s annual conference as regards the use of CBDC in New Zealand. He noted that retail central bank digital currencies are a topic of investigation for central banks worldwide, including the Reserve Bank.
“As we look to the future, we’re still curious to see how payment and money technology will develop,” says Hawkesby in a statement.
