Project Inthanon-LionRock Description
The Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BOT) completed a joint research project named “Project Inthanon-LionRock”. This proof of concept (PoC) project examined the use of a wholesale Central Bank Digital Currency (W-CBDC) for cross-border payments. The project was done by the two central banks, eight Thai banks, and two Hong Kong banks.
The project used Distributed Ledger Technology (DLT) system to do real-time atomic cross-border transactions. The project used Corda’s R3’s blockchain platform for a token-based W-CBDC and depository receipts (DR) in a cross-border corridor network. This network was used as a bridge between the domestic wholesale payment network in each jurisdiction.
In the project, all participating banks had their own presence and could transfer W-CBDC tokens to each other. This peer to peer transfer is a streamlined intermediation procedure. The project used the Payment Versus Payment (PVP) settlement mechanism with banks in Hong Kong and Thailand.
For the cross-border transfer of the Hong Kong dollar (HKD) and the Thai Baht (THB), the project satisfactorily:
- transferred tokens between Hong Kong and Thailand banks
- did a foreign exchange (FX) price discovery for the HKD-THB
- immediately did the FX conversion
- made sure that the FX settlement was finalized.
Future Work
The next step in the project is a full production-grade system. But first, it is necessary to examine:
- legal regulations and regulatory compliance issues such as
- Anti-Money Laundering requirements
- operational issues
- as it is necessary to define the governance model for the network and the roles and responsibilities for the central banks and participant banks in the network
- technical limitations, such as
Conclusion
The project showed that it is possible to do cross-border funds transfers and foreign exchange transactions on a peer-to-peer basis. Thus, it would no longer be necessary to use correspondent banks. It is also possible to do real-time transfers and atomic PvP settlements. The result is an increase in efficiency and lower overall transaction costs for cross-border payments.
