HKMA and BOT published a report on outcomes of the joint Central Bank Digital Currency (CBDC) research project named Project Inthanon-LionRock. This project is an initiative to explore the application of Distributed Ledger Technology (DLT) to increase efficiency in cross-border fund transfers. The project was completed in December 2019 and a DLT-based proof-of-concept (PoC) prototype was developed successfully with ten participating banks from both countries. Project LionRock has proven the feasibility of utilizing DLT to conduct CBDC issuance and its atomic Delivery-versus-Payment (DvP) transactions.
The PoC shows that CBDC has the potential to reduce intermediaries and settlement layers in comparison to the traditional banking payments system. The key findings of the project relate to token conversion, real-time interbank funds transfer, foreign-exchange execution, liquidity management, and regulatory compliance. Project LionRock consisted of two phases conducted in a successive manner. Phase A focused on assessing the potential benefits and challenges in CBDC issuance and the technical viability of DLT. The key findings of Phase A include:
- Proved technical feasibility to interface DLT-based CBDC with Real-Time Gross Settlement system (RTGS) safely
- Proved possible extension of access of central bank money to corporates without opening up access to RTGS
- Demonstrated benefits brought by DLT to CBDC include transaction traceability, security, and resilience, along with the enablement of direct settlement on central bank money between customers
- Revealed challenges concerning scalability and privacy issues
The Phase B further evaluated the technical feasibility and suitability of implementing the life-cycle of exchange fund bills and notes, or EFBN, and Hong Kong government bonds on the DLT network. The key findings of Phase B include:
- Proved technically feasibility to tokenize exchange fund bills and notes as well as government bonds
- Validated operational benefits in automated intraday repo
- Discovered challenges in carrying out some corporate actions; for example, coupon payments
The key functionalities to support cross-border transactions in the corridor have been developed with participants in an attempt to incorporate practical business requirements. However, some challenges, namely regulatory and operational issues, along with certain technical limitations, may need to be explored in the next stage of the project. Suggestions for the way forward include adapting the model to match existing regulations as well as refining the model to ensure that it complies with global standards and can create synergies with other internal or external systems of other currencies.
The project involved valuable contributions from participating banks, technology partners, and development teams, reflecting the shared urgency to shape the application of DLT to prevail over existing pain points in cross-border transfers. It was initiated as a follow-up to the Memorandum of Understanding signed between the HKMA and BOT in May 2019. The two authorities agreed to proceed with further joint research work in relevant areas, including exploring business cases and connections to other platforms, involving participation of banks and other relevant parties in cross-border fund transfer trials. The project represents an important step forward in the realm of CBDC initiatives, especially in the advancement of cross-border transactions. With a committed team behind the platform, the PoC represents one of the many future potential DLT advancements between Hong Kong and Thailand.
Keywords: Asia Pacific, Hong Kong, Thailand, Banking, Securities, CBDC, Project Inthanon-LionRock, Cross-Border Payments, Delivery Versus Payment, Regulatory Compliance, Blockchain, Distributed Ledger Technology, Fintech, Regtech, BOT, HKMA
Previous ArticleFED Proposes to Revise Information Collection Under Market Risk Rule
The European Commission (EC) published the Delegated Regulation 2021/1527 with regard to the regulatory technical standards for the contractual recognition of write down and conversion powers.
In a response to the questions posed by a member of the European Parliament, the President Christine Lagarde highlighted the commitment of the European Central Bank (ECB) to an ambitious climate-related action plan along with a roadmap, which was published in July 2021.
The Single Resolution Board (SRB) published a Communication on the application of regulatory technical standard provisions on prior permission for reducing eligible liabilities instruments as of January 01, 2022.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to provide guidance to authorized deposit-taking institutions on the interpretation of APS 120, the prudential standard on securitization.
The French Prudential Control and Resolution Authority (ACPR) published the corrective version of the RUBA taxonomy Version 1.0.1, which will come into force from the decree of January 31, 2022.
The European Commission (EC) announced that Nordea Bank has signed a guarantee agreement with the European Investment Bank (EIB) Group to support the sustainable transformation of businesses in the Nordics.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to clarify the regulatory capital treatment of investments in the overseas deposit-taking and insurance subsidiaries.
The European Banking Authority (EBA) published the final report on the guidelines specifying the criteria to assess the exceptional cases when institutions exceed the large exposure limits and the time and measures needed for institutions to return to compliance.
The Prudential Regulation Authority (PRA) issued the policy statement PS20/21, which contains final rules for the application of existing consolidated prudential requirements to financial holding companies and mixed financial holding companies.
The European Banking Authority (EBA) revised the guidelines on stress tests to be conducted by the national deposit guarantee schemes under the Deposit Guarantee Schemes Directive (DGSD).