- Today, banks have to go through correspondent banks to intermediate these payments. It takes time and adds to cost
MAS, the Singapore exchange,and eight banks have embarked on a proof-of-concept project to use blockchain technology for inter-bank payments, including cross-border transactions in foreign currency.
- This effort is supported by the R3 blockchain research lab and BCS Information Systems.
Under the pilot system, banks will deposit cash as collateral with the MAS in exchange for MAS-issued digital currency. The banks can later redeem the digital currency for cash.
- Participating banks can pay each other directly with this digital currency instead of first sending payment instructions through MAS.
- This is an improvement over current large-value payment systems that are centrally operated. It strengthens resilience and lowers cost.
The banks also have the option of using the existing common payments gateway provided by BCS Information Systems to transact on the blockchain.
- The banks need not rewrite their back-end systems.
- This practical capability rides on the advances made by OCBC Bank in its recently announced inter-bank payments pilot.