28 Feb Crossborder Settlement & Custody
Crossborder Settlement & Custody
Wholesale businesses who make FX transfers into Australia
Current international payment methods can experience delays in reporting, causing reconciliation challenges and exposing clients to counterparty risk, particularly for non-bank financial institutions (NBFIs) who do not have direct access to central bank exchange settlement accounts.
Improve speed of settlement for the AUD component of FX transactions by settling CBDC to an individual custodial wallet. This mitigates counterparty risk as funds are held on chain in CBDC, helps provide transparency via blockchain technology and could simplify regulatory obligations for the service provider.
CBDC as a settlement token with no counter-party risk offers clear, high trust reporting and faster on-off ramps into fiat or other value tokens.
Non-bank financial institutions do not have access to Exchange Settlement Accounts at the RBA. Any custody or intermediary roles introduce financial risk and additional regulatory burdens for the NBFIs and their clients. The use of CBDC blockchain technology could expand the role of NBFIs to support more innovative financial services and improve the overall efficiency of payments for Australian Businesses.
The use case demonstrated improving payments efficiency and risk mitigation for wholesale FX customers.
Existing clients sold foreign currency, to buy pilot CBDC, as they do currently as part of their normal course of business. Upon agreement of an FX rate and receipt of an amount of foreign currency from the client, the solution settled and attributed the pilot CBDC on the CBDC ledger to the client. On request of the client, the operator provided conversion from pilot CBDC to AUD fiat.
The CBDC ledger allows reduction of counterparty risk by providing transparency to the client regarding the holdings of funds (AUD) received on the use case platform. The parties involved in the pilot transactions were Monoova and selected Australian domiciled business clients.
Monoova helped its clients trial the utilisation of pilot CBDC for settlement of their regular FX transfers during the pilot period, offering them a chance to verify the benefits a CBDC could offer for crossborder transfers.