The Monetary Authority of Singapore has revealed a three-step plan to connect the world’s central banks via distributed ledger technology.

The two-phase effort called “Project Ubin” would see global central banks settling cross-border transactions in real time via a blockchain.

Unlike the current system, where only high-value or institutionally crucial transactions are settled in real time, Project Ubin is being designed to let make every cross-border payment and security settlement almost instant.

By tokenizing global currencies and protecting the privacy of each transaction using zero-knowledge proofs, Intel’s software guard extensions, or other means currently being explored, the new system of self-executing smart contracts could increase both the speed and privacy of international transactions.

But Project Ubin – built in partnership with banking consortium R3 and banks including Bank of America Merrill Lynch, Credit Suisse, JPMorgan and Mitsubishi UFJ Financial Group – is about more than just remittances.

History of the project

The first phase of the six-week project concluded December 23, 2016, and was formally announced on March 9, 2017, with the publication of a white paper detailing the results of the partnership.

Co-authored by Deloitte, the 44-page white paper, recounted Project Ubin’s strides towards tokenizing the Singaporean dollar (SGD) using distributed ledger technology. Specifically, the paper explained how lessons learned by R3 during a similar effort with Canada, called Project Jasper, were employed to build an ethereum-based prototype.

The paper shows how the system for the Monetary Authority of Singapore’s high-value and urgent transfers, called MEPS+, can be linked to the real-time gross settlement system (RTGS) to increase money transfer efficiency between different participant’s online wallets.

In search of solutions

Phase two of the project is now underway.

Designed to further research the prototype, the specific aim is now to improve how transactions are settled compared to the current system, where they are queued and periodically netted using “classical algorithms,” according to a representative of the Monetary Authority.

The process, called “gridlock resolution,” requires that a single central party have an overarching view of all the transactions to find the net sum. But if phase two of Project Ubin is ultimately successful, that could all change.

This second phase is divided into three steps. Now underway, step one involves a closer look at the mechanics of smart contracts, according to the representative.

To bridge the gap between the promise of distributed ledger technology to privately settle transactions in gross – or real time, as opposed to netting periodically – a team of eight part-time staffers and two full-time interns is exploring the use of zero-knowledge proofs, secure multi-party computation like MIT’s Enigma Project, Intel’s software guard extension (SGX) technology and Microsoft’s cryptlets.

The second step of Project Ubin’s current work is to identify how the platform can be integrated with various central securities depositories, including Singapore’s own SGX, which is overseen by the Monetary Authority.

If that is successful, step three would eventually extend the digital bank issued cryptocurrencies even further to other central banks.

Central bank blockchains

The Monetary Authority’s plan to improve on the scalability and privacy of distributed ledger technology follows a shift in recent months away from last year’s enthusiasm about the potential of blockchain to decentralize some central bank tasks.

Last August, BNY Mellon, Deutsche Bank, Santander and UBS revealed plans for their own “settlement coin,” a similar, controversial, effort aimed to help central banks transact using tokenized assets on a distributed ledger.

In recent months, though, both the Bank of Canada and the Bank of England have made public statements about what they believe are the current limitations of blockchain technology and other distributed ledgers to provide the volume and privacy they need.

Going forward, the Monetary Authority’s research team plans to validate policy questions around the possible conversion of the Singapore dollar into a central bank-issued digital currency (CBDC) and the potential impact of such a change on monetary policy.

A consultation paper on the matter is also forthcoming, designed to make clear the trajectory of the project.

Monetary Authority of Singapore image via Shutterstock