Central Bank of Bahrain (CBB) has teamed up with two international banks for a project focused on improving cross-border digital payments and settlement.
CBB is collaborating with JP Morgan and Bahrain-headquartered Bank ABC (Arab Banking Corporation) to ‘address inefficiencies’ in international payments using digital currency, it has announced.
Digital clearing and settlement solutions are being explored by central banks as they look to overcome cross-border payment frictions, such as the time and resource needed for multiple validations of details.
CBB will act as a ‘close partner’ as US-headquartered JP Morgan and Bahrain-headquartered ABC trial the transfer of funds from (and to) the Kingdom of Bahrain in US dollars for payments from buyers to suppliers. The pilot, it says, will lead to suppliers being paid faster and buyers originating payments in less time.
The central bank says that it would also ‘look to extend’ the collaboration to central bank digital currencies (CBDCs).
The central bank’s governor, His Excellency Rasheed Al-Maraj, said the aim was to “address the inefficiencies and pain-points which exist today in the traditional cross-border payments arena” and was “in line with our vision and strategy to continually develop and enrich the capabilities extended to the stakeholders within our financial services sector in the Kingdom using emerging technologies”.
Partior: ‘a global watershed’
News of the Bahrain collaboration comes just a couple of weeks after JP Morgan announced that it had set up a joint-venture with Singapore sovereign wealth fund Temasek and Singapore-headquartered bank DBS to improve cross-border payments by using blockchain and smart contracts technology.
The new company, Partior, uses blockchain to enable ‘programmable value transfer’ for participating banks and clients in real-time across a common and open platform. It also aims to develop wholesale payments rails based on digitised commercial bank money to enable ‘atomic’ or instant settlement of payments for various types of financial transactions, its three co-founding institutions say.
The venture is partly inspired by Project Ubin, a public-private initiative led by the Monetary Authority of Singapore (MAS) to explore the application of blockchain involving multi-currency payments and settlements. Partior, which would need regulatory approval in any relevant jurisdiction, starts with a focus on facilitating flows primarily between Singapore-based banks in both US and Singapore dollars.
MAS chief fintech officer Sopnendu Mohanty described Partior’s launch as “a global watershed moment for digital currencies, marking a move from pilots and experimentations towards commercialisation and live adoption.”
There’s CBDC… but ‘also other ways’
JP Morgan’s involvement in the Bahrain collaboration is being led by its Onyx business unit, which was created last year to spearhead its work in areas such as blockchain and digital currency.
Onyx’s chief executive, Umar Farooq, was among the participants at a Bank for International Settlements (BIS) Innovation Summit 2021 panel session in March that focused on the extent to which the development of wholesale CBDC – central bank digital money issued directly to commercial banks – has the potential to improve cross-border payments. The session – entitled ‘Fast, cheaper cross-border payments: is wholesale CBDC the answer?’ – sought to pick up on themes from the Financial Stability Board’s ‘Enhancing Cross-Border Payments’ roadmap presented to the G20 last October.
During the session Farooq described CBDC as “one very exciting way” that payment operating systems could evolve. But he added: “There are also other ways – fundamentally changing RTGS [real-time gross settlement] systems to make them real-time.” Saying that “real power” could be found in “the programmability of the platform” itself, Farooq told the online audience: “We can make potentially money smart – so, it protects itself from money laundering, versus ourselves [banks] having to do [check] identity. When you start combining those factors you can create something very powerful and very futuristic. I believe we’ve only scratched the surface.”
Separately, interbank payments network SWIFT and consultancy Accenture last week published an 18-page paper entitled ‘Exploring central bank digital currencies: How they could work for international payments’. SWIFT’s chief executive, Javier Perez-Tasso, was a panellist at the same BIS Innovation Summit session.
‘China and UAE join HK-Thai explorations of cross-border digital currency payments’: Global Government Fintech’s news story from 24 February on the central banks of China and the United Arab Emirates (UAE) teaming up with the equivalent authorities in Hong Kong and Thailand to investigate the potential for CBDC use in cross-border foreign currency payments; the Central Bank of the UAE had already run a wholesale CBDC proof-of-concept, known as ‘Project Aber’, with the Saudi Central Bank to settle domestic and cross-border transactions using central bank money via distributed ledger technology