The Asian Development Bank on Wednesday said it launched a project to explore the possibility of directly connecting central banks and securities depositories using blockchain technology.
Linking leading financial institutions directly using a blockchain network could cut transaction costs and settlement risks and make them more “efficient and secure,” the Manila-based lender said in a statement.
“Working with leading blockchain companies, ADB will seek to develop ways to directly connect central banks and securities depositories in the ASEAN+3 region within a blockchain network,” it said.
Blockchain is a decentralized technology used to record transactions and was initially used for cryptocurrencies.
Currently, cross-border transactions in the ASEAN+3 region are processed through a global network of custodians and correspondent banks, which go through global centers in either the US or Europe, the ADB said.
As a result, transactions take at least 2 days due to time differences and varying operating hours, it added.
The ADB said the project would be implemented in 2 phases, a designing phase by the end of March 2022 and a prototyping phase set for the second quarter of 2022.
Results will be discussed by the ASEAN+3 central banks and securities depositories, the lender said.
ADB said the project is supported by its Digital Innovation Sandbox Program. It is also working with ConsenSys, Fujitsu, R3 and Soramitsu on the project, “which will also examine systems interoperability and the viability of central bank digital currencies in the region, it said.
The ASEAN+3 region is consists of the Association of Southeast Asian Nations with Japan, Republic of China, and Republic of Korea.
CENTRAL BANK DIGITAL CURRENCIES
The proliferation of virtual currencies such as bitcoin has opened up more avenues for innovation in the global banking landscape.
China’s central bank, one of the pioneers of central bank digital currencies or CBDCs, had proposed global rules for the interoperaibility of digital currencies between nations.
The central bank of South Korea also announced it would build a platform for digital currencies.
US Federal Reserve chair Jerome Powell, meanwhile said the Fed would soon release the results of a study on the pros and cons of using CBDCs.
In the Philippines, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said in November the central bank is eyeing the use CBDCs “in the near future” but for wholesale transactions.
BSP Deputy Governor Mert Tangonan told ANC that the central bank is studying the use of CBDCs while comparing notes with its global counterparts.
There is a technical working group exploring the concept but the use of CBDCs is not a race, Tangonan said.
In December, lawmakers have formed a technical working group to consolidate 4 bills seeking to create the country’s digital currency or the Bangko Sentral Digital Peso, the House Committee on Banks and Financial Intermediaries said.
Meanwhile, the BSP has been pushing for the increase in the share of digital payments to up to 50 percent by 2023, under its Digitalization Roadmap.
Diokno aims to convert the cash-reliant nation to a “cash-lite” economy in the new normal.
The use of InstaPay and PESONet electronic fund transfers surged during the COVID-19 pandemic, with at least 1 in 5 payments now digital, according to the latest BSP report.