Central banks to test digital currencies for settlements

Four central banks will work with the Bank for International Settlements to help test central bank digital currencies for global settlements.

In a statement, the Bank for International Settlements today said 'Project Dunbar' would develop shared platforms to enable international transactions using multiple central bank digital currencies.

"These multi-CBDC (central bank digital currency) platforms will allow financial institutions to transact directly with each other in the digital currencies issued by participating central banks, eliminating the need for intermediaries and cutting the time and cost of transactions," the Bank for International Settlements, with the chief finTech officer of the Monetary Authority of Singapore adding the project would help make cross-border payments cheaper and faster.

The central banks participating in the test are the Reserve Bank of Australia, Bank Negara Malaysia, the Monetary Authority of Singapore, and South African Reserve Bank.

Project Dunbar will explore different governance and operating designs, the Bank for International Settlements said, adding that the results of the project will inform the development of future platforms for global and regional settlements. Technical prototypes of shared platforms developed by the project will be demonstrated at the Singapore FinTech Festival in November, while the final results are expected to be published in early 2022. Project Dunbar comes at a time when central banks globally are grappling with the rising acceptance and purchase of cryptocurrencies by individuals and organisations.

While the treatment of cryptocurrencies varies from country to country, the central American country of El Salvador became the first in June to accept Bitcoin as legal tender.

The dangers posed by cryptocurrencies, as%ral banks, range from undermining monetary policy, supporting illicit activities, and exposing its holders from the general public to extreme volatility.