SC Ventures and G+D Complete Pilot on Different Types of CBDC Systemsby Fintech News Singapore December 12, 2023
SC Ventures, the innovation, fintech investment, and ventures arm of Standard Chartered, and Giesecke+Devrient (G+D) successfully completed a proof-of-concept (PoC) on the Universal Digital Payments Network (UDPN).
This PoC involved executing real-time cross-border test transactions between various Central Bank Digital Currency (CBDC) systems.
The aim of this PoC was to show how commercial banks could integrate two different types of CBDC systems into their existing banking infrastructure and perform end-to-end multilateral cross-currency transfers via the UDPN.
The project tested the feasibility of conducting multilateral cross-currency transfers through the UDPN, involving both Distributed Ledger Technology (DLT) and non-DLT-based CBDC technologies.
The PoC explored two models. The first being the indirect model, where commercial banks manage CBDC wallets and settlements directly on the UDPN, while the central bank handles wholesale settlement between commercial banks and keeps all transaction records. The indirect model featured an on-chain DLT-based solution developed by UDPN engineers.
Commercial bank participants, through their own instances of UDPN Business Nodes, can actively engage in various activities, such as CBDC issuance (for issuing banks), wallet creation, linking wallets to bank accounts and KYC systems, fiat-CBDC exchange, AML/CFT compliance, and initiation of CBDC transfers, swaps, and settlement.
Meanwhile, the the direct model is where central banks manage wallets and settlements within a centralised CBDC system. G+D’s non-DLT-based CBDC system, Filia, was used in the direct model, demonstrating its interoperability and can be integrated into both traditional account-based environments and DLT solutions.
This trial showcased the capability for efficient cross-currency transfers, including processes like foreign exchange conversion, liquidity management, and issuance of retail and wholesale CBDCs. The participants noted significant improvements in the efficiency, cost, speed, and transparency of cross-border transactions.
Globally, over 130 countries are exploring, developing, or have launched CBDCs. The Bank for International Settlement predicts 24 central banks will have digital currencies by 2030, with CBDC transactions expected to grow significantly.
The International Monetary Fund suggests CBDC adoption could provide financial access to a large portion of the unbanked population in developing countries and potentially reduce cross-border transaction costs significantly.
The UDPN, announced earlier in Davos during the World Economic Forum week in January, is a DLT-based network aiming to facilitate interoperability among various regulated digital currencies, including stablecoins and CBDCs.
It was developed with contributions from global IT and financial service providers and is currently engaged in multiple PoCs exploring various use cases.
Those interested in exploring UDPN’s PoC portfolio or joining the UDPN Alliance can visit the website here.
Thorsten Neumann, CTO, SC Ventures said,
“SC Ventures is excited to have participated in the successful completion of PoC #10 on the UDPN. This proof of concept not only demonstrates the integration of diverse CBDC systems but also the frictionless transfer of cross-border transactions.
Through this PoC, we’ve demonstrated the potential infrastructure of the financial system of the future.”
Dr. Raoul Herborg, Managing Director CBDC at G+D said,
“Business and commerce globally depend on cross-border payments. Central Bank Digital Currencies must therefore be able to work together quickly, easily and securely across national borders.
A cross-border retail CBDC would furthermore provide cost-effective access to financial services to migrant workers globally and offer them financial inclusion.”