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Crypto Payments: Canada and Singapore Central Banks Send Each Other Digital Currencies

Last Updated September 23, 2020 12:40 PM
Joseph Young
Last Updated September 23, 2020 12:40 PM

By CCN.com: The Bank of Canada and the Monetary Authority of Singapore (MAS) has conducted a successful pilot test of central bank-backed crypto assets to clear cross-border and cross-currency payments.

The official statement of MAS released on May 2 described the potential of “central bank digital currencies” in increasing the efficiency and reducing risks for international transactions.

“The Bank of Canada and the Monetary Authority of Singapore (MAS) have conducted a successful experiment on cross-border and cross-currency payments using central bank digital currencies. This is the first such trial between two central banks, and has great potential to increase efficiencies and reduce risks for cross-border payments,” MAS said.

Can Central Bank Digital Currencies be Considered Crypto?

According to MAS, the pilot tests relied on the Distributed Ledger Technology (DLT), a term often used to describe a private blockchain network that is centralized to a large extent.

A centralized blockchain network is a protocol that is controlled or overseen by a specific group of node operators that are approved by a central entity to process data.

One benefit of a private blockchain or DLT is scalability and large transaction capacity. A private blockchain allows an entity to process a certain amount of information that is difficult to process using public blockchain networks without utilizing second-layer scaling solutions.

But, it remains unclear whether DLT-based networks can be described as blockchain networks due to their lack of a decentralized structure.

Still, the successful experiment using a blockchain-based crypto asset or digital currencies by two major central banks indicate the rise in interest in blockchain technology and crypto as viable technologies to process payments at a global scale.

The collaboration between the Bank of Canada and MAS comes after several major financial institutions such as JPMorgan have released their own digital assets.

JPMorgan Asia Pacific Head of Digital Naveen Mallela said that the bank will collaborate with the MAS in the coming years to execute transactions at scale.

Mallela said:

We are encouraged that Quorum has contributed to further progress in enabling cross-border payments. We look forward to continued collaboration with MAS and the financial community towards exploring a future where transactions can be executed at scale, safely, and more efficiently. J.P. Morgan is at the forefront of blockchain innovation and we will continue to invest in relevant technologies to improve the payment experience for our clients.

More Central Banks Expected to Experiment With Blockchain and Crypto

In the foreseeable future, MAS is expected to work with other central banks to develop central bank blockchain projects to better settle cross-border payments for banks and retail clients of banks that cooperate with the central bank.

Sopnendu Mohanty, Chief FinTech Officer at MAS stated:

Together these projects have addressed many technical questions and brought the technology to a higher level of maturity. The next wave of central bank blockchain projects can make further progress by bringing technology exploration together with policy questions about the future of cross-border payments. It is challenging work, and we welcome other central banks to join us in this global collaboration, to bring benefit to consumers, businesses and the broader financial industry.

Continuous experimentation of blockchain technology, crypto assets, and digital currencies by central banks could rekindle the confidence of companies exploring to commit to the crypto industry.

For many years, prior to the entrance of firms in the likes of Fidelity, Nasdaq, and ICE into the crypto sector, institutions and investors questioned the long-term sustainability of crypto and blockchain technology.