According to the central banks involved, a project to test a central bank digital currency (CBDC) in four places in Asia and the Middle East has shown that they can speed up and improve cross-border payments.
Project mBridge was a pilot program that included commercial and central banks from China, Hong Kong, Thailand, and the United Arab Emirates (UAE). From August 15 to September 23, 20 banks in each of the four markets used the system to handle more than 160 payments and foreign exchange transactions worth about $22 million.
In a report released on October 26, the participants said that the pilot “confirmed that a common multi-CBDC platform can improve the speed and efficiency of cross-border payments, reduce settlement risks, and support the use of local currencies in international payments.”
The project was called “the largest cross-border CBDC pilot to date” by the Hong Kong Monetary Authority. It was also one of the first multi-CBDC projects to settle real-value, cross-border transactions on behalf of corporations.
CBDCs are different from Bitcoin and Ethereum because they are issued by states instead of private institutions and their value shouldn’t change more than a country’s regular currency. One of the main goals of a CBDC is to make it easier for people to do business across borders by giving them a stable, quick, and inexpensive way to settle deals.
At least some of these goals seem to have been met by the pilot project. The Bank of Thailand said that it cut the time it took to transfer money across borders from 3–5 days to just a few seconds.
The Central Bank of the UAE said this week that the project had “demonstrated faster, cheaper, and more secure cross-border monetary settlements” and that it “provides an efficient, regulatory-compliant, and scalable cross-border payment solution… designed to work across different jurisdictions and currencies.”
Now, more work is going to be done on the mBridge platform to, among other things, make it work better with domestic payment systems and add liquidity management tools and more foreign exchange features.
There is still a chance that other countries will be asked to join. Howard Lee, the deputy chief executive of the Hong Kong Monetary Authority, said that he hoped the results of the pilot would convince other central banks to join mBridge “either as an observer or a participant” to get the most out of the network effect and the project’s full potential.
