Asian And Middle East Central Banks Claim Success With Digital Currency Pilot

A project to test a central bank digital currency (CBDC) across four jurisdictions in Asia and the Middle East has shown they can enable faster and more efficient cross-border payments, according to the central banks involved.

The pilot scheme, known as Project mBridge, involved central banks and commercial lenders in China, Hong Kong, Thailand and the United Arab Emirates (UAE). Over a six-week period from August 15 to September 23, the system was used by 20 banks across the four markets to process more than 160 payments and foreign exchange transactions with a total value of around $22 million.

In a report issued on October 26, the participants said the pilot had “confirmed that a common multi-CBDC platform can improve cross-border payment speed and efficiency, reduce settlement risks and support the use of local currencies in international payments”.

The Hong Kong Monetary Authority described the project as “the largest cross-border CBDC pilot to date”, as well as being among the first multi-CBDC projects to settle real-value, cross-border transactions on behalf of corporates.

CBDCs are distinct from better-known cryptocurrencies such as Bitcoin and Ethereum
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, as they are issued by states rather than private institutions and their value should not move around any more than a country’s conventional currency. One of the main purposes of a CBDC is to enable international commerce, by providing a stable, efficient and cheap system to settle cross-border deals.

The pilot project appears to have met at least some of these aims, with the Bank of Thailand saying it allowed cross-border transfer times to be cut from 3-5 days to just a few seconds.

The Central Bank of the UAE said this week that the project had “demonstrated faster, cost-effective and secure cross-border monetary settlements” and added that “it provides an efficient, regulatory-compliant and scalable cross-border payment solution… designed to operate across different jurisdictions and currencies.”

Further development of the mBridge platform is now planned to, among other things, improve its interoperability with domestic payment systems and to integrate liquidity management tools and greater foreign exchange functionality.

Other countries may yet be invited to participate. Hong Kong Monetary Authority deputy chief executive Howard Lee said he hoped the results of the pilot would encourage other central banks to join mBridge “either as an observer or participant to maximise the network effect and realise the potential of the project to the fullest.”