Central banks in the Asean region are taking a step further into the digital currency space through a new partnership by the Asean Financial Innovation Network (AFIN), which will allow banks to build and test their own central bank digital currency (CBDC).
Through a collaboration with enterprise software provider R3, AFIN will launch a digital currency sandbox in August, where developers can create and test code as they build applications for new payment rails and multi-currency payment systems.
AFIN was established as a non-profit organisation in 2018 by the Asean Bankers Association (ABA); International Finance Corporation (IFC), a member of the World Bank Group; and the Monetary Authority of Singapore (MAS). AMTD Foundation and Mastercard are AFIN’s corporate founding members.
The collaboration will allow financial institutions and FinTechs to access select application programming interfaces (APIs) from R3 on AFIN’s API Exchange (APIX). APIX is the world’s first cross-border, open architecture API marketplace for collaboration between FinTechs and financial institutions, where participants can test solutions on the sandbox with each other via cloud-based technology.
The APIX platform has scaled by “leaps and bounds” in the three years since its launch, says Pieter Franken, independent advisor for AFIN. “Today, it is enabling the FinTech ecosystem to provide new impetus to the deployment of digital currencies in everyday transactions globally. With R3’s APIs on APIX, we will see financial institutions and FinTechs designing new CBDC solutions collaboratively and deploying them as future-ready enterprises.”
MAS’s chief FinTech officer Sopnendu Mohanty notes the “increasing interest” in blockchain technologies. “[This] has created a strong demand for more efficient international payment settlements compatible with these technologies. MAS is encouraged by the collaboration between AFIN and R3 to facilitate broader experimentation between central banks, financial institutions, and FinTechs around the world.”
“The collaboration will enable the global FinTech ecosystem to better understand the financial innovations around digital currencies.”
Mint condition
Implementing a new currency is no small feat, says David Rutter, founder and CEO of R3. It requires deep technical knowledge to develop and maintain the infrastructure and applications that facilitate CBDC application, he adds.
“Many developers are beginning to acquire specialised skill sets in CBDCs, but the pool of talent for central and commercial banks to recruit is fairly limited. We’ve recognised this and built our R3 sandbox for digital currencies to make CBDC software development kits more accessible and create a better learning path for participants,” says Rutter.
Rutter: R3 has deep expertise working alongside governments, regulators and central banks along with the private sector since inception
Founded in 2014, the company leads a consortium partnership consisting of over 100 of the world’s leading financial institutions to design and deliver distributed ledger technology (DLT) to global financial markets.
Some big names are behind the company too. In 2017, R3 received its first wave of funding — a whopping US$107 million ($145 million) from 40 of its backers — with investments from Bank of America Merrill Lynch, Wells Fargo, Citigroup, HSBC, Barclays, UBS and Temasek.
The most obvious benefit of CBDCs is that they allow cross-border payments around the clock, outside of conventional work hours and time zones. However, standardising regulatory frameworks between countries poses huge challenges, says Rutter.
To address this, R3 brought together over 140 regulators, central banks, commercial banks, exchanges, technology and payments companies to form the CBDC working group. “We also developed a new taxonomy and set of definitions for digital currency that provides a common language for the industry to understand the considerations and decisions relevant to the building of a CBDC,” says Rutter.
R3’s enterprise blockchain platform goes by the name Corda, and it welcomes more than 400 institutions that are deploying, servicing and building on the platform. “Notably, R3 has partnered with Nasdaq to create a dynamic and trusted digital asset marketplace. Corda was integrated into Nasdaq’s marketplace services platform and deployed to support its digital asset lifecycle — from issuance to trading, settlement and custody,” says Rutter.
Rutter notes that Corda has been “integral” to Project Jura, which involves the central banks of France and Switzerland, and the Bank of International Settlements (BIS) innovation hub. The project explores a new approach to international payments that allows an exchange of a wholesale CBDC between two parties, one domiciled in France and the other in Switzerland.
In Italy, Corda powers the Spunta Banca DLT project promoted by the Italian Banking Association (ABI) to create a fully operational interbank reconciliation process among more than 100 Italian banks. According to Rutter, the Spunta blockchain streamlines and automates the complex process of reconciling transactions, helping banks reduce this process from weeks to a matter of hours.
See also: Cooperation key to scaling up blockchain adoption
R3 has also worked with Contour, the digital trade finance network of leading trade banks across the globe, including Bangkok Bank, HSBC, Standard Chartered and DBS Bank.
While the list of names is indeed impressive, how does R3 juggle the many financial institutions that use its platform and their varied interests?
“R3 has deep expertise working alongside governments, regulators and central banks along with the private sector since inception,” says Rutter. “In any multilateral effort, each party will naturally have their own specific priorities. However, the collective agenda of the CBDC working group and R3 sandbox for digital currencies is clear: pave the way for the implementation of digital currencies.”
Rutter believes financial institutions will carry an element of altruism into the nascent world of blockchain technology. “As central banks, commercial banks and FinTechs understand that all will benefit from an interoperable international payment system. Each party will adopt and operate with a strong spirit of collaboration across all jurisdictions.”
Asean’s ambitions
This is not the first foray into digital currencies by many countries in Asean. There have been multiple pilot and research projects on CBDCs conducted in the region of late.
In Singapore, MAS embarked on Project Ubin to explore the use of blockchain and DLT for clearing and settlement of payments and securities. Having completed all five phases in July 2020, MAS is now collaborating with BIS on Project Dunbar, an experimental project aimed at enabling banks worldwide to use blockchain and CBDCs for cross-border payments.
In Cambodia, Project Bakong, an initiative of the National Bank of Cambodia, was launched last October. The namesake digital currency is expected to allow citizens to make payments and transfer money using their smartphones.
In Thailand, R3 participated as a technology partner in Bank of Thailand’s Project Inthanon, as well as Project Inthanon-LionRock, a joint collaboration between Bank of Thailand and the Hong Kong Monetary Authority, culminating in the successful trade of the Thai baht and Hong Kong dollar in real time without intermediaries.
“Forty million people in the Asean region came online for the first time in 2020, bringing the total number of Internet users to 400 million,” says Rutter, noting the region’s “enormous” unbanked population of over 290 million people. “With a high smartphone penetration rate and access to mobile internet, countries in Asean are certainly ripe for adoption of payment innovation.”
“Governments in the Asean region have been receptive to blockchain … through a series of digitalisation frameworks, financial support, and programmes from the public sector. This growing support from the public sector will give rise to new industries and drivers of economic growth for the Asean region.”
Photol Bloomberg
