The central banks will deploy distributed ledger technology to develop a proof-of-concept prototype with the aim of making regulation-heavy foreign exchange payments cheaper and more efficient.
The central banks of China, the United Arab Emirates, Hong Kong and Thailand have joined in a digital currency initiative using blockchain for cross-border payments. Dubbed the Multiple Central Bank Currency Bridge, or m-CBDC Bridge, the project is a collaboration conceived by the Basel-based Bank for International Settlements (BIS) with the Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BoT).
According to the BIS, the central banks will deploy distributed ledger technology (DLT) to develop a proof-of-concept prototype with the aim of making regulation-heavy foreign exchange payments cheaper and more efficient.
“The m-CBDC Bridge project will foster a conducive environment for more central banks in Asia as well as other regions to jointly study the potential of DLT in enhancing the financial in-frastructure for cross-border payments,” the BIS said a statement.
Analysts say m-CBDC Bridge may be seen as challenge to the Society for Worldwide Interbank Financial Telecommunication (Swift), which currently brokers the bulk of global foreign cur-rency transactions. Critics argue that Swift, which uses a secure messaging platform, has increas-ingly become a vehicle for US and EU sanctions at a time of heightened tensions with Beijing. China’s ambitions to roll-out the Digital Yuan are a thinly veiled attempt to sidestep Washing-ton’s proxy grip on the global financial system as the threat of sanctions grows, they say.
The new FX payments facility also highlights a growing incongruity between “stablecoins” backed by a reserve asset and decentralized digital currencies like Bitcoin and Ethereum. The latter have gained momentum by eliminating the use of intermediaries, enabling them to make payments at a fraction of the cost of conventional banks using the Swift network.
However, some governments are taking an increasingly hard line against cryptocurrency use out-side traditional regulatory structures amid fears of excessive price volatility. India, for one, is seeking to criminalize the possession, issuance, mining, trading and transfer of crypto assets in favor of a state-backed digital version.