Digital currency can settle forex transactions in 15 seconds: Study

CBDC study

The Federal Reserve’s New York chapter on Friday released the first phase results of Project Cedar, a project that focused on testing various use cases of wholesale central bank digital currency (wCBDC). The project found that the blockchain-enabled payments system settled foreign exchange transactions in less than 15 seconds.

The experiment was conducted by N.Y. Fed’s New York Innovation Center (NYIC).
The 12-week project focused on the development of a wholesale CBDC prototype and examined the potential application of distributed ledger technology in enhancing the functioning of cross-border payments.

The report released on 4 November summarizes the problem statement, hypothesis, design, and results of the experiments conducted in Phase 1. It examined if the use of blockchain technology could improve the speed, cost, and access to cross-border wholesale payments. While all the payment systems functioned well, the research identified opportunities for improvement around the settlement. Some of the notable findings of the experiments are detailed below.

  • Faster payments: Project Cedar found that its distributed ledger system can settle FX transactions in under 15 seconds on average. The current system can take up to two days to settle most FX spot trades.
  • Atomic settlement: The simulated ledger network enabled atomic settlement, meaning both side transactions (debit and credit) were settled simultaneously or not at all. This greatly reduced the risks that counterparties in the transactions face in the traditional system.
  • Safe and accessible transactions: The distributed system enabled payments on a 24/7, 365- day basis. It supported objectives related to interoperability by allowing transactions on similar network structures, representing market participants like private banks, central banks, and other financial institutions.

In Phase 2 of the project, NYIC will focus on exploring other sets of challenges including interoperability and ledger design and how to achieve settlement across different blockchain systems.

The Reserve Bank of India launched a pilot wholesale CBDC on 1 November 2022 for the settlement of secondary market transactions of government securities.

Article Default Disclaimer

Share this:

IN THIS ARTICLE

Subscribe to our newsletter

Weekly crypto updates and insights delivered to your inbox.

Browse our Newsletter Archive for past editions.

SnowSnow

Thank you for subscribing!
Please verify your email to start receiving the latest issues from Switch in your Inbox.
Powered by

Build your crypto portfolio on the
CoinSwitch app today

Scan the QR code below or find us on Google Play
Store or Apple App Store.

Build your crypto portfolio on the
CoinSwitch app today

Scan the QR code below or find us on Google Play Store or Apple App Store.