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Singapore’s central bank is testing out the use of blockchain for banks making payments to each other.
The Monetary Authority of Singapore (MAS), the country’s central bank, is working with IT supplier R3 and a consortium of financial institutions on a proof-of-concept project to conduct inter-bank payments using blockchain.
The financial firms include Bank of America Merrill Lynch, the Bank of Tokyo-Mitsubishi UFJ, Credit Suisse, DBS Bank, HSBC, JP Morgan, OCBC Bank, Singapore Exchange, and United Overseas Bank.
The pilot will initially see banks deposit cash with the MAS in exchange for MAS-issued digital currency. It could later see the banks use the system to transfer foreign currency.
“The simplification of processes that comes from having a single, coherent, distributed record of information makes blockchain technology an attractive solution for the financial sector,” said Sopnendu Mohanty, chief financial technology officer at MAS. “The bank is engaging with the industry and working closely with our partners to explore innovative payment solutions.”
Tan Kah Chye, board member of Singapore-based financial services firm Tin Hill Capital, said an initiative such as this could have a material positive impact.
“I believe the use of digital currency will pick up speed for business-to-business domestic and cross-border trades when they are supported by mainstream banks and regulators. This has the potential for significant improvement in working capital for businesses, lower cost of operations and greater regulatory transparency.”
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R3, the blockchain specialist supplier involved, has also announced plans to open a blockchain centre of excellence in Singapore. The IT supplier is already working with global banking consortiums including Barclays, RBS and HSBC, and has completed cloud-based tests of the use of five different blockchain technologies in wholesale banking.
“Payments and the representation of fiat currency on blockchains is a potentially significant use case for distributed ledger technology, and we firmly believe that partnership between regulators, central banks and the financial services sector will accelerate solutions to maturity,” said Tim Grant, CEO at R3’s lab and research centre.