Caixin
Nov 04, 2021 03:58 AM
FINANCE

Asia-Middle East Digital Currency Trial Reports Progress

More than 2 billion yuan ($312 million) of cross-border transactions were completed in the m-CBDC Bridge Project.
More than 2 billion yuan ($312 million) of cross-border transactions were completed in the m-CBDC Bridge Project.

A trial of a digital cross-border payment system between Asia and the Middle East made progress in the eight months after it was launched, according to a report issued Wednesday.

A total of 22 banks and financial institutions from mainland China, the United Arab Emirates, Hong Kong and Thailand participated in the study of the Multiple Central Bank Digital Currency (m-CBDC) Bridge project. The collaboration among the central banks of the four jurisdictions completed more than 2 billion yuan ($312 million) of cross-border transactions, according to the report released at the Hong Kong Fintech Week conference.

The project aims to facilitate real-time cross-border foreign exchange transactions in a multi-jurisdictional context and explore cross-border business usage employing domestic and foreign currencies.

Conventional cross-border payment transfers are costly, riddled with inefficiencies and subject to complex regulatory hurdles. For example, in cross-border trade, anti-money laundering checks are key tasks carried out by remittance banks. Financial institutions have to understand the details of each transaction and may require companies to provide additional information, such as sales contracts, invoices and proof of delivery. After clearing such obstacles, remittances through the clearing systems of different financial institutions may take days to complete.

In the m-CBDC Bridge project, cross-border trade payments can be made in real time between Hong Kong’s eTradeConnect platform and the People’s Bank of China’s trade finance platform, cases involving Bank of China show.

In cross-border payments, digital currencies refer to central bank digital currencies and global stablecoins that have stable value and can effectively perform the basic functions of an official currency, rather than crypto assets represented by Bitcoin, which are mainly used as investment assets, said Zou Chuanwei, chief economist at Shanghai Wanxiang Blockchain Inc.

There are two types of central bank digital currencies: wholesale and retail. The wholesale currencies can be used only by central banks and financial institutions to conduct and settle interbank transactions, while the retail currencies are available to the public, such as China’s digital yuan. The m-CBDC Bridge is a wholesale system to support multi-currency cross-border payments.

The Hong Kong Monetary Authority, the city’s de facto central bank, initiated the m-CBDC Bridge program in 2019 by working with the Bank of Thailand to build a prototype of the platform. The program entered a second phase in February as the People’s Bank of China and the central bank of the United Arab Emirates joined, along with the Bank of International Settlements as the project coordinator.

A further trial of cross-border payments using the m-CBDC Bridge program is expected to begin by the end of 2021, Hong Kong Monetary Authority Chief Executive Eddie Yue said in July.

“If phase three proves to be successful, we can actually commercialize it,” Yue said.

Participating banks and financial institutions in the m-CBDC Bridge program include the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Communications Bank, Postal Savings Bank of China, China Foreign Exchange Trade Center, HSBC, Standard Chartered Bank, Hong Kong Exchanges and Clearing and the Banking Association of Thailand.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (hello@caixin.com)

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