A clutch of Asian central banks is helping to pioneer a blockchain-based platform to make cross-border digital currency transfers easier as governments rush to develop virtual money.
A pilot test of the platform, called mBridge, involved central banks from Hong Kong, Thailand, China and the United Arab Emirates. It has been developed by the Bank for International Settlements, the global financial institution that works to foster cooperation and support among central banks.
A total of USD 12 million worth of different central bank digital currencies (CBDC) were issued on the platform, according to a report by the BIS released on Wednesday.
Governments around the world are developing CBDCs—digital forms of their fiat currencies—using blockchains, a form of technology most commonly associated with cryptocurrencies like Bitcoin. The main aim is to make payments more efficient, while avoiding the volatility of cryptocurrencies.
Over six weeks in August and September, 20 commercial banks, including HSBC, Bank of China, Bangkok Bank and First Abu Dhabi Bank, coordinated 164 successful payment transactions and foreign exchanges worth a total of USD 22 million on behalf of corporate clients in a pilot using CBDCs issued on mBridge.
“By providing a shared platform on which participants conducted peer-to-peer payments directly in the safety of central bank money across multiple jurisdictions, the pilot successfully demonstrated the platform’s ability to improve cross-border payment speed and efficiency, and to reduce settlement risks in a real-world setting,” BIS said in the report.
Three types of transactions were tested during the pilot: the issuance of CBDCs between central banks and domestic commercial banks, cross-border payments between commercial banks and cross-border foreign exchanges between commercial banks.
Transactions during the pilot mostly comprised corporate payments for international trade settlements of goods and services, using CBDC versions of the Hong Kong dollar, Chinese yuan, Thai baht and UAE dirham.
The mBridge project builds on earlier pilots that allowed Hong Kong and Thailand commercial banks to conduct basic peer-to-peer fund transfers.
Commercial banks involved in the latest pilot found the mBridge technology enhanced the speed and efficiency of payments, improved transparency and reduced settlement risks, according to the report.
BIS said mBridge needs to be refined and improved before it is ready for a full-scale roll out, adding that the next two years will focus on improving data privacy tools and integrating transaction and liquidity management tools.
Regulatory changes and legal clarity will also be required to enable the widespread adoption of international CBDC settlements on mBridge, and to unlock the potential of digital currencies, the BIS said.
“Extending access to central bank money directly to foreign participants and conducting transactions on a shared ledger requires further exploration of policy, data privacy and governance considerations.”
As of July, there were nearly 100 CBDC projects, according to the International Monetary Fund. Ten countries have launched a digital currency, with China set to expand its pilot of the e-yuan next year. South Korea, Japan and India and are among the countries that have made strides this year toward developing or completing their own digital currency pilots.