Analysis

The Dawn of Central Bank Blockchain Corridors

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The Monetary Authority of Singapore

For several years now, the Monetary Authority of Singapore has taken a proactive
approach in exploring and trailing blockchain technology for its possible application into their
financial system. Since 2016, MAS (Monetary Authority of Singapore) has established a
regulatory sandbox allowing Fintech companies to experiment within regulatory parameters.¹
MAS has also collaborated with Deloitte, R3, and a consortium consisting of HSBC, J.P.
Morgan,Bank of America Merrill Lynch, and etc. on Project Ubin.

Project Ubin is a proof-of-concept (PoC) of interbank payments being facilitated by distributed ledger technology
(DLT). The blockchain also introduced the concept of a digital SGD (Singapore Dollar) within the
ledgers that is distinct from all current existing forms of digital central bank money. With Project
Ubin’s ultimate goal is to explore and help reduce risks and costs for cross border payments
and securities.²

MAS has even taken a step further in nurturing the FinTech environment by signing
multiple FinTech cooperation agreements with overseas financial regulators including Financial
Conduct Authority, UK (May 2016), Australian Securities and Investments Commission (June
2016), Swiss Financial Market Supervisory Authority (September 2016), Korean Financial
Services Commission (October 2016), Autorité de Contrôle Prudentiel et de Résolution and the
Autorité des Marchés Financiers of France (March 2017), Financial Services of Agency, Japan
(March 2017) and the Danish Financial Supervisory Authority (June 2017).

In a CNBC interview this past October, Sopnendu Mohanty (chief fintech officer of the Monetary Authority of
Singapore ) stated that “Some regulators are afraid to do experiments because of this tremendous external pressure on them. We are trying to drive that culture globally” in regards to Project Ubin’s collaboration between MAS and the consortium of banks.³

With the successful conclusion of Project Ubin last March, MAS stated that it was “in the
early stages of discussions to develop links from Singapore to other countries using DLT to
allow cross-border payments to settle directly using central bank accounts.”⁴ Which exactly
aligns to implied future explorations on Project Ubin, cross border payments.⁵
The innovation occurring in the environment of Singapore has caught the attention of
several nations due to its potential disruption in the current financial system. One nation being
Bahrain, a country that has ambitions to be completely integrated in blockchain technology by
2020.⁶

The Economic Development Board (EDB) of Bahrain being tasked with this goal, has
been observing MAS and their progress. Eventually leading to Bahrain having discussions with
Singapore’s central bank to devise plans for a pilot blockchain project in the Gulf state.⁷
Potentially being a foreign partner in foreign currency transactions that Ravi Menon (the
managing director of the central bank of Singapore) had hinted Project Uben wanted to explore
in future phases of the project.

And this further developed this past November when MAS disclosed that “a collaboration
on cross-border payments with the Bank of Canada using blockchain technology” had been
reached.⁸ The collaboration intends to expand Project Ubin beyond Singapore’s borders to
Canada’s counterpart, Project Jasper. An interbank payment system developed by Canada’s
central bank based off of distributed ledger technology.⁹

Gradually overtime, Singapore’s central bank has been able to negotiate and form
partnerships with other central banks to explore the use of distributed ledger technology
into the financial system and possibly build corridors based off the technology with one another.

Enter Ripple

When MAS was forming the FinTech regulatory sandbox in 2016, Ripple was sought out
as a consultant for the establishment of the project.¹⁰ Not only did this demonstrate that Ripple
is viewed as a leader in the FinTech space but that the company has expertise in understanding
the importance of regulatory compliance between companies and regulators. Along with that,
Ravi Menon (Managing Director of MAS) praised Ripple for having a solution to real-time gross
settlement, currency exchange, and remittance thru DLT. Menon also stated that, “Ripple
strongly supports MAS’s goal of creating a unified regulatory framework for payments in
Singapore. We believe the proposed framework has the potential to eliminate the overlapping
nature of today’s requirements, minimize uncertainty, and promote safe innovation”.¹¹
MAS reaching out to Ripple also revealed that government institutions such central
banks and financial regulatory authorities have been consulted and in discussions with Ripple
for cooperation in the development of projects.

Which is evident by the number of proof-of-concepts Ripple has participated with both central banks and regional banks. In latter reports on Project Ubin progress released by MAS, the central authority revealed that a prototype integrating the Ripple blockchain for Peer-to-Peer (P2P) transactions across geographies would be trialed.¹² While in Singapore these past few weeks, multiple news outlets are reporting that Ripple is in discussions for its technology to be part of the MAS’s blockchain experiment in cross-border payments.¹³ ¹⁴

The Bank of England also held it’s own proof-of-concept (PoC), selecting Ripple to help
to demonstrate cross-border payments and settlement using two different Real Time Gross
Settlement (RTGS) systems.¹⁵ The PoC intention was to demonstrate synchronisation of cash
movements made using two simulated RTGS systems utilizing the open-source Interledger
Protocol (RippleNet). The results of the PoC were ultimately shared later last year with words of
encouragement for Ripple’s technology.¹⁶ The Bank of England sharing thru a report, “We
successfully integrated the Ripple solution with two simulated RTGS systems, hosted in the
cloud, and demonstrated that we could process a successful cross-border payment across two
RTGS systems simultaneously”. The report ended by disclosing that “Cross-border payments
when applied to wholesale markets present different challenges than when compared with retail
and corporate transactions, which the Ripple product is designed to handle.

The availability of liquidity is one such challenge, and the PoC allowed the Bank and Ripple to begin exploring
these questions”.¹⁷ Implying that the Bank of England and Ripple’s discourse has yet to end and
leaving an open question on the possible utilization of XRP as a liquidity solution.
And we know that Ripple has been holding discussions with several central banks and
authorities through social media.

Notable examples such as Ryan Zagone (Director of Regulatory
Relations at Ripple) with the central bank of Indonesia and Dilip Rao (Global Head,
Infrastructure Innovation at Ripple) with Bahrain EDB’s Khalid Saad.

Interestingly enough, this past December EDB’s Khalid Saad gave an insightful interview
to Singapore Business Review on Bahrain and Singapore’s relationship in the financial
technology space. When asked about Singapore’s innovation in FinTech, Saad replied by
saying “We’ve seen some initiative of what Singapore is doing. They’re looking obviously at
some data initiatives and open APIs. I think these are developments that are definitely
noteworthy. I think the other thing is mentioned by the Governor of the Central Bank or the
Managing Director Ravi Menon of MAS, is they built a corridor between Singapore and Hong
Kong using the blockchain, and I think that’s another idea that could be explored between
Bahrain and Singapore, and potentially expanding back to the region. So I think these two are
very key takeaways”.

Also elaborating to a question regarding both country’s collaborations, “I
think you can have the government-to-government talk and the regulatory talking, but with the
private sectors to prioritise to each side that helps further overcome any perceived challenges
and further develop this cooperation further. And I think people, with this relationship with
Fintech Consortium, a fact that is started in Singapore and now is helping Bahrain develop the
Fintech Ecosystem, I think people are starting to look at it more for me, a cooperative angle”.¹⁸
With Saad’s photo with Dilip Rao, Bahrain’s intentions to build a corridor between themselves
and Singapore, and MAS wanting to expand Project Ubin to partner countries utilizing RippleNet
for cross-border payments, it certainly leaves the strong possibility that Ripple will more than
likely be involved.

And there is one other subtle but odd coincidence in regards to Bahrain and
Ripple. There is, and appears to be an increasing an amount of nodes within Ripple’s network
displaying conflicting time zones that are intended for the Bahrain region. One other noteworthy
point, Khalid was appointed as CEO of Bahrain FinTech Bay (“BFB”).¹⁹ Saad will oversee the
implementation of BFB’s long and short-term objectives which will certainly align with the
nations goal to have country wide adoption on blockchain technology by 2020.

Returning to the previously mentioned collaboration between the central banks of
Canada and Singapore on cross-border payments based on the utilization of DLT, unveils
subtle connections to Ripple.²⁰ MAS is not the only participant with ties to Ripple but the
majority of the participants in Project Jasper have individually trialed Ripple technology or
collaborated with the company.²¹ Banks and collaborators consisting of the Bank of Montreal,
CIBC, Royal Bank of Canada, Scotiabank, TD Bank, and R3 have all direct trials and
collaborations with Ripple at some point in time.²² ²³

Essentially if not all, almost all Project Jasper participants are cooperating with Ripple already. In the latest report released on Project Jasper, future exploration on central bank to central bank digital cross-border currency
exchange is a priority. Specifically on how might a single-currency DLT zone best be connected
with other currencies.²⁴

The report puts the central banks collaboration into perspective while
Ripple blockchain technology seems to be the next logical step to be trialed.
Ripple’s prominence in the finance world has grown so much that just this past
November, Ripple alongside the IMF, held a Central Bank Summit in New York City. The
summit was able to gather more than two dozen central banks from around the world. The
summit provide the right environment to provide “an opportunity to explore the full payments
landscape: central banks’ domestic trials, Ripple’s growing cross-border network and
interoperability across systems”, said Brad Garlinghouse.²⁵ Both the IMF and Ripple also went
in depth on the current financial system’s structure and shortcomings in cross-border payments.
Proceeding with the advantages of adopting distributed ledger technology and the issuing of
central bank digital currencies.²⁶

The collaboration between Ripple and central banks is just at the beginning as Ripple now has a Infrastructure Innovation team geared towards central banks and market infrastructures that will focus on “piloting interoperability between payment systems, the use of DLT for domestic clearing and settlement and novel applications of xCurrent as well as our digital asset XRP”.²⁷

What the Future Holds

It is safe to say that Ripple has not only positioned itself excellent in regards to central
banks and regulators, but Ripple’s technology including it’s network and XRP, will also be
compliant to however central authorities will want to impose regulations on cryptocurrencies.
Implying that XRP will meet KYC, AML, and CTF standards in order for the digital asset to be
adopted for both institutional and commercial applications. And because of the familiarity with
RippleNet and understanding of XRP, central banks will be less likely to ban the digital asset
outright considering it’s potential utilization as a liquidity solution for the markets. Both scenarios
alluded to by MAS just this week, “Shanmugaratnam added that at some stage, fiat currency will
have to be exchanged for virtual currency, or vice versa, at intermediaries that buy, sell or
exchange virtual currency. MAS therefore intends to impose AML/CFT requirements on such
intermediaries.

MAS is currently conducting public consultation on a proposed Payment
Services Bill that will empower us to do this”.²⁸ With Ravi Menon speaking on blockchain
technology and cryptocurrencies, “I do hope when the fever has gone away, when the crash has
happened, it will not undermine the much deeper, and more meaningful technology associated
with digital currencies and blockchain” and mentioning that “If it [cross-border remittance] was
going through a blockchain using cryptocurrencies, it could yield benefits. That ought to be the
question, rather than whether bitcoins or ether are going up in value or not”.²⁹
Currently regulators are beginning to cooperate with one another with the intentions to
how properly regulate and address the growing cryptocurrency market.³⁰

Luckily both Ripple and XRP will probably be spared of any outright prohibitions of cryptocurrencies in the future, as most regulators will have at least been in discussions with the company in the past. An
example being both Chinese³¹ and Japanese authorities being joined by South Korea for the
regulations on cryptocurrencies in the region when the former group has held discussions with
Ripple.

One thing is certain though: in regards to central banks, authorities and regulators, both Ripple
and XRP are in the perfect position to be potentially adopted for global application soon.

Sources
1. http://www.mas.gov.sg/Singapore-Financial-Centre/Smart-Financial-Centre/FinTech-Reg
ulatory-Sandbox.aspx
2. https://www.opengovasia.com/articles/7845-mas-introduced-sgd-3. https://www.cnbc.com/2017/10/26/singapore-cryptocurrency-blockchain-trial.htmlon-ledger-concept-for-b
lockchain-based-interbank-payment-system-poc
4. http://www.mas.gov.sg/News-and-Publications/Media-Releases/2017/MAS-working-withindustry-to-apply-Distributed-Ledger-Technology.aspx
5. https://www.cnbc.com/2017/10/26/singapore-cryptocurrency-blockchain-trial.html
6. https://www.ccn.com/bahrain-signs-fintech-pact-singapore-amid-plan-country-level-block
chain-adoption/
7. http://www.arabianbusiness.com/bahrain-in-talks-with-singapore-on-blockchain-pilot-665
012.html
8. http://www.mas.gov.sg/News-and-Publications/Speeches-and-Monetary-Policy-Statements/Speeches/2017/Singapore-FinTech-Journey-2.aspx
9. https://www.ccn.com/singapore-canadian-central-banks-unite-blockchain-cross-border-p
ayments/
10. https://ripple.com/files/ripple_mas_sandbox_consultation_07_2016.pdf
11. https://ripple.com/insights/singapores-continued-investment-in-banking-innovation/
12. http://www.mas.gov.sg/~/media/ProjectUbin/Project Ubin SGD on Distributed Ledger.pdf
13. http://www.straitstimes.com/business/companies-markets/cryptocurrency-player-ripple-k
een-to-set-off-blockchain-waves-in
14. https://themarketmogul.com/ripple-singapore/
15. https://ripple.com/insights/ripple-selected-to-participate-in-the-bank-of-england-fintech-ac
celerators-exploration-of-the-use-of-blockchain-for-global-rtgs/
16. https://ripple.com/insights/results-of-the-bank-of-englandripple-proof-of-concept-publishe
d-today/
17. https://www.bankofengland.co.uk/-/media/boe/files/fintech/ripple
18. https://www.bahrainfintechbay.com/single-post/2017/12/13/Everything-you-need-to-know
-about-Singapore-and-Bahrains-FinTech-relationship
19. https://www.bahrainfintechbay.com/single-post/2018/01/14/Press-Release-Bahrain-FinT
ech-Bay-appointment-of-Chief-Executive-Officer
20. https://www.ccn.com/singapore-canadian-central-banks-unite-blockchain-cross-border-p
ayments/
21. https://www.coindesk.com/bank-canada-demos-blockchain-based-digital-dollar/
22. https://twitter.com/Ripple/status/659442643827474432?ref_src=twsrc%5Etfw
23. https://ripple.com/insights/ripple-and-r3-team-up-with-12-banks-to-trial-xrp-for-cross-bord
er-payments/
24. https://www.payments.ca/sites/default/files/29-Sep-17/jasper_report_eng.pdf
25. https://ripple.com/insights/ripple-hosts-worlds-central-banks-to-explore-next-generation-o
f-payments/
26. https://www.imf.org/en/News/Articles/2017/11/01/sp103017-fintech-and-cross-border-pa
yments
27. https://ripple.com/insights/exploring-innovation-payment-system-infrastructures/
28. https://www.crowdfundinsider.com/2018/01/127084-singapore-deputy-pm-responds-amlanti-terror-financing-questions-regarding-cryptocurrency/
29. https://www.ccn.com/singapore-central-bank-chief-wants-cryptocurrency-to-survive-cras
h/
30. https://www.coindesk.com/report-south-korea-eyes-joint-crypto-regulations-with-china-ja
pan/
31. https://cointelegraph.com/news/ripple-talks-with-peoples-bank-of-china-key-to-chinese-bl
ockchain-market

This article has been written by Twitter user _mars75. We thank him a lot for sharing such accurate reports and informations with us and all XRP investors. Share your comments and thoughts with us and the author below the post, or let us know your feelings on our Twitter page. Enjoy the long reading!

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