Home Payments Multi-CBDCs technically viable but ‘more unknowns than knowns’: BIS-led project

Multi-CBDCs technically viable but ‘more unknowns than knowns’: BIS-led project

Collaboration across borders: Project Dunbar has seen four central banks, led by the BIS Innovation Hub, experimenting together on CBDC-related innovation | Credit: kiquebg; Pixabay

The completion of prototypes for a common platform enabling international settlements using multiple central bank digital currencies (CBDCs) has been announced by the Bank for International Settlements (BIS) Innovation Hub alongside the central banks of Australia, Malaysia, Singapore and South Africa.

The authorities’ joint-explorations, known as ‘Project Dunbar’, have proved that financial institutions such as commercial banks could use CBDCs issued by participating central banks to transact directly with each other on a shared platform, according to the findings of what is one of the first significant technical experiments in the emerging multi-CBDC arena.

This development has ‘the potential to reduce the reliance on intermediaries and, correspondingly, the costs and time taken to process cross-border transactions’, according to their 63-page report. But the ‘International settlements using multi-CBDCs’ publication also makes clear that ‘there are still more unknowns than knowns’ ahead of further technical explorations.

Project Dunbar’s work, which has also involved the private sector, has achieved its aim of proving that the concept of multi-CBDCs is technically viable, the report’s summary states, emphasising that ‘this is an important step, but still just a first step into the space’.

‘Assumptions will continue to be challenged as new information arises, and designs and prototypes will continue to improve,’ the summary continues. ‘As an exploratory project with a limited timeline, Project Dunbar ended with more questions than answers, and more questions than before it started.’

More countries, more considerations

The project adopted three workstreams: one focusing on high-level functional requirements and design, and two technical streams that created prototypes on different technological platforms (one prototype was developed by R3 on the Corda platform, and one prototype was developed by Partior based on the Quorum platform).

Those leading the project identified three overarching questions: which entities should be allowed to hold and transact with CBDCs issued on the platform? How could the flow of cross-border payments be simplified while respecting regulatory differences across jurisdictions? And what governance arrangements could give countries sufficient comfort to share critical national infrastructure such as a payments system?

The project was named after ‘Dunbar’s number’, a concept in social anthropology on the cognitive limit on how many people one person can maintain stable social relationships with. A similar limit may exist with bilateral payments systems’ linkages due to both technical and governance considerations. Point-to-point connections, as have been widely explored in other CBDC linkage projects, are likely to face scalability concerns due to the exponential growth of bilateral connections required: linking up 100 central banks directly with each other would require approximately 5,000 bilateral connections. This project explored models that could overcome this connectivity challenge.

A 23-page BIS paper published one year ago, ‘Multi-CBDC arrangements and the future of cross-border payments’, said central banks would be wise to ‘co-ordinate early and openly’ in incorporating cross-border considerations into CBDC development.

The broader backdrop is the G20 Roadmap for Enhancing Cross-Border Payments developed by the Financial Stability Board (FSB) in co-ordination with the BIS Committee on Payments and Market Infrastructures (CPMI) and other international bodies published 18 months ago (the FSB issued a progress report six months ago). ‘Building block 19’ of the G20 roadmap is ‘factoring an international dimension into CBDC design’.

‘Series of regional platforms’ may be more likely

Project Dunbar’s vision and broader objective is enabling a global network of connected CBDC platforms and interoperable CBDCs.

The central banks involved are the Reserve Bank of Australia (RBA), Bank Negara Malaysia, the Monetary Authority of Singapore (MAS) and the South African Reserve Bank (SARB), with the project led by the BIS Innovation Hub’s Singapore centre.

An ‘ideal state and the epitome of efficient cross-border payments’ would be a single global settlement platform that connects all central banks and commercial banks, the newly published report states. But it goes on to predict that given the complexity of having central banks sharing critical financial infrastructures and the unique requirements of each jurisdiction, a common multi-CBDC platform may be more likely to be implemented as a series of regional platforms rather than as a single global platform.

‘In the roadmap to achieving the vision of Project Dunbar, the next major step is developing and testing a regional multi-CBDC platform to a high level of production fidelity,’ the report concludes.

“A common platform is the most efficient model for payments connectivity but is also the most challenging to achieve,” said the BIS Innovation Hub Singapore centre’s head, Andrew McCormack. “Project Dunbar demonstrated that key concerns of trust and shared control can be addressed through governance mechanisms enforced by robust technological means, laying the foundation for the development of future global and regional platforms.”

International CBDC collaborations

The use for CBDC-related technology to improve international payments has gained growing prominence over the past couple of years, with various central banks collaborating in a similar way to those involved with Project Dunbar.

The central banks of China and the United Arab Emirates (UAE), for example, teamed up with the equivalent authorities in Hong Kong and Thailand to investigate the potential CBDC use in cross-border foreign currency payments. The four authorities are also collaborating with the BIS Innovation Hub Centre in Hong Kong, with the project named ‘m-CBDC Bridge’. The Central Bank of the UAE had already run a wholesale CBDC proof-of-concept with the Saudi Central Bank to settle domestic and cross-border transactions using central bank money via DLT (‘Project Aber’).

Also in the wholesale CBDC space, ‘Project Jura’ – whose conclusions were presented last December – saw the Banque de France (BdF) and Swiss National Bank (SNB), working with BIS and in collaboration with six private companies, exploring whether CBDCs can be used effectively for cross-border settlement between financial institutions. A dual‑notary signing solution developed by R3 using the Corda platform was at the heart of this.

Separately, the BIS Innovation Hub and MAS last July presented ‘Project Nexus’, a blueprint that set out how nations could fully integrate their retail payment systems into a single cross-border network with ‘minimal adaptations’.

*** The Bank of Ghana has issued a 32-page paper on CBDC entitled ‘Design paper of the digital Cedi (eCedi)’. The West African state’s central bank last year teamed up with German company Giesecke+Devrient (G+D) to test a general purpose CBDC. The eCedi ‘takes into consideration CBDC standards, making it possible for Ghana to participate in international projects on cross-border CBDCs,’ the paper states.


‘CBDCs effective for cross-border wholesale transactions, Franco-Swiss trial concludes’our news story (8 Dec 2021) on the conclusions of Project Jura

‘BIS-Singapore project aims for international payments “as quick as a text message”’ – our news story (30 July 2021) on Project Nexus

‘Public and private sectors must work together to improve cross-border payments: BoE’s Cunliffe’our report (24 March 2021) on a panel session entitled ‘Fast, cheaper cross-border payments: is wholesale CBDC the answer?’ at last year’s BIS Innovation Summit

‘China and UAE join HK-Thai explorations of cross-border digital currency payments’ – our news story (24 Feb 2021) on the central banks of China and the 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 BIS Innovation Hub Centre in Hong Kong is also involved)