A trial of a digital cross-border payment system between Asia and the Middle East has progressed in the eight months since its launch, according to a report released on Wednesday.
A total of 22 banks and financial institutions from mainland China, United Arab Emirates, Hong Kong and Thailand participated in the study of the Multiple Central Bank Digital Currency Bridge (m-CBDC) project. The collaboration between the central banks of the four jurisdictions has resulted in more than 2 billion yuan ($ 312 million) in cross-border transactions, according to the report released at the Hong Kong Fintech Week conference.
The project aims to facilitate real-time cross-border currency transactions in a multi-jurisdictional context and explore cross-border commercial use using domestic and foreign currencies.
Conventional cross-border payment transfers are expensive, riddled with inefficiencies, and subject to complex regulatory hurdles. For example, in cross-border trade, anti-money laundering checks are key tasks performed by transfer banks. Financial institutions need 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 overcoming these obstacles, sending remittances through the clearing systems of different financial institutions can take days.
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 trade finance platform, as shown by cases involving the Bank of China.
In cross-border payments, digital currencies refer to central bank digital currencies and global stablecoins that have a stable value and can effectively perform the basic functions of an official currency, rather than the 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. Wholesale currencies can only be used by central banks and financial institutions to conduct and settle interbank transactions, while retail currencies are publicly available, such as the Chinese 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 with the accession of the People’s Bank of China and the UAE Central Bank, as well as the Bank for International Settlements as the project coordinator.
Another trial of cross-border payments using the m-CBDC Bridge program is expected start by the end of 2021Hong Kong Monetary Authority chief executive Eddie Yue said in July.
âIf phase three proves successful, we can actually bring it to market,â Yue said.
Banks and financial institutions participating in the m-CBDC Bridge program include Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, Construction Bank of China, Bank of Communications, Postal Savings Bank of China, the China Currency Trading Center, HSBC, Standard Chartered Bank, Hong Kong Exchanges and Clearing, and the Thailand Banking Association.
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