Distributed ledger technology (DLT) can help improve cross-border wholesale payments involving multiple currencies, according to findings announced by the New York Federal Reserve and Singapore’s central bank.

As part of an experiment, the two central banks examined a cross-border multi-currency use case in which vehicle currencies were used as a bridge to exchange currency pairs that are not widely traded.

Leong Sing Chiong, deputy managing director of markets and development at the Monetary Authority of Singapore (MAS) said that the experiment envisages a future digital currency environment where central banks can allow the interoperability of wholesale CBDCs to facilitate more efficient cross-border payment flows including for less liquid currencies, without requiring a common infrastructure.

During the trial, the NY Fed and MAS interlinked the distinct bank currency ledgers and provided “flexibility” in the design and operation of each ledger to the respective central bank.

They said that this allowed payments to be safely executed across multiple ledgers without the need for a central clearing authority or the introduction of a shared central network.

During the trial the simulated payments were also settled atomically, which means that the transactions were only settled if all legs in the cross-currency payment chains were executed successfully.

The NY Fed said that this process addressed issues commonly associated with cross-border payments, such as counterparty risks.

According to the central banks, each simulated payment scenario completed end-to-end settlement in less than 30 seconds on average.

“Cross-border payments are a major railway for facilitating the functioning of the global economy,” said Michelle Neal, head of the markets group at the New York Fed. “Our research collaboration with the MAS reveals key opportunities for central bank innovation to play an important role in easing wholesale payment flows globally and improving settlement outcomes.”

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