China’s central bank said Wednesday it has joined its counterparts in Thailand and the United Arab Emirates to study the use of digital currencies in cross-border payments, a move that puts it closer to setting the global rules for international transactions handled in national virtual currencies.
This is an expansion of a testing project being conducted by the People’s Bank of China and the Hong Kong Monetary Authority, which is the territory’s central banking institution.
The four participants will explore blockchain technology with the goal of building a system that will handle overseas transfers in digital currencies issued by central banks as well as perform transaction settlements.
China has conducted real-world trials of its digital yuan in major cities. The government plans to make the e-currency recognized as legal tender, which could be issued officially by the time of the Beijing Winter Olympics, which open in February next year.
About 60% of central banks surveyed by the Bank for International Settlements say they are in the proof-of-concept testing phase of their digital currency research. Thailand’s central bank is using its Inthanon digital currency for domestic large-volume wholesale payments on a trial basis, according to local media. Last year, Thailand decided to expand the experiment to retailers.
The UAE has been working on a digital currency with Saudi Arabia since 2017.
The PBOC has been calling on Asian central banks to join its digital currency project. Beijing intends to advance research into a multinational payment system, with China at the center of it, and control the debate over international standards. The ultimate goal for Beijing is to internationalize the yuan.
In January, the PBOC formed a joint venture with the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, the organization that handles international settlements. Four institutions under the PBOC, including the digital currency research institute and the Cross-Border Interbank Payment System, hold stakes in the venture. SWIFT is the majority owner at 55%.
According to sources close to the project, a main objective of the joint venture is to research how international transfers are handled once digital currencies become commonplace. SWIFT’s systems can exchange electronic messages between banks when carrying out trade transactions and fund transfers.
If currencies are digitized “electronic messages will be rendered meaningless,” said a financial market source, echoing a widely held view.