The Asian Development Bank (ADB) has launched a project to make cross-border securities transactions in Asia and the Pacific more efficient and secure through the use of blockchain technology.
Working with leading blockchain companies, ADB will seek to develop ways to directly connect central banks and securities depositories in the ASEAN+3 region within a blockchain network. The region consists of the Association of Southeast Asian Nations plus Japan, the People’s Republic of China, and the Republic of Korea.
ADB is partnering with American and Japanese technology firms ConsenSys, Fujitsu, R3, and Soramitsu on the project, which will also examine systems interoperability and the viability of central bank digital currencies in the region.
Reduced costs and risks
Directly connecting central banks and securities depositories within a blockchain network could reduce both transaction costs and settlement risks—the possibility that securities are not exchanged within an agreed time frame.
Cross-border securities transactions in the ASEAN+3 region are currently processed through a global network of custodians and correspondent banks, which go through global centers in either the United States or Europe. As a result, intraregional transaction settlements in ASEAN+3 take at least 2 days, due to time differences as well as varying operating hours for markets within the same time zone.
ASEAN+3 has conducted several studies on establishing a regional settlement intermediary to stimulate intraregional financial investments. The Asian Bond Markets Initiative leads these studies as part of efforts to develop local currency bond markets to minimize currency and maturity mismatches and to mobilize the region’s savings to finance long-term investment across the region. Its findings show that the best model for establishing a regional settlement intermediary is through central securities depository–real-time gross settlement linkage. The group is also looking into new technologies, such as distributed ledger technology and blockchain, for this purpose.
Some central banks in ASEAN+3 have started to use these technologies. For example, the National Bank of Cambodia launched a digital currency called Bakong in October 2020. It was developed with Japanese technology company Soramitsu. The Bakong system is a blockchain-based nationwide payment service that is designed to enable wholesale interbank transactions as well as real-time retail payments by consumers using a mobile app.
Prototype for cross-border transactions
The ADB project will be carried out in two phases: a designing phase, to be completed by the end of March 2022, and a prototyping phase, scheduled for the second quarter of 2022. The results will be discussed with ASEAN+3 government officials and members of the Cross-Border Settlement Infrastructure Forum of the Asian Bond Markets Initiative, made up of central banks and securities depositories from across the region.
The project is supported by ADB’s Digital Innovation Sandbox program, a platform for partners across the public and private sectors to collaborate on digital solutions.
This article was first published on 29 January 2022 in our Weekly E-Paper issue 178 | More stories here