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The Bank for International Settlements is partnering with the central banks of China, Hong Kong, Thailand and the UAE to conduct new tests of cross-border central bank digital currency.
The BIS innovation hub in Hong Kong, run jointly with the Hong Kong Monetary Authority, will now work with the People’s Bank of China’s Digital Currency Institute, as well as the Bank of Thailand and Central Bank of the UAE, to test cross-border CBDC payments.
Hong Kong and Thailand have already been exploring cross-border applications of CBDC through their joint “Inthanon-LionRock” project. With China and the UAE joining the project, it is being renamed the “Multiple CBDC (m-CBDC) Bridge”
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 infrastructure for cross-border payments,” the institutions said in a joint statement.
The project will aim to develop a distributed ledger-based payment system allowing around-the-clock foreign exchange payment-versus-payment transactions. The project will test business use cases for both domestic and foreign currencies. The organisations said current cross-border payments suffer from “inefficiencies, high cost and complex regulatory compliance”, all of which they hope the pilot will alleviate.
“Most importantly, the participating central banks will take into account the results of the [proof of concept] work to evaluate the feasibility of the m-CBDC Bridge project for cross-border fund transfers, international trade settlement and capital market transactions,” they said.
Senior officials in Hong Kong indicated their willingness to collaborate with counterparts in China on CBDC in October. Hong Kong and China already have close financial links, and Christopher Hui, Hong Kong’s financial services secretary, said he hoped the collaboration would allow easier “two-way flow” of renminbi payments.
In January 2020, the HKMA and Bank of Thailand published a study on Project Inthanon-LionRock that found cross-border CBDC could substantially cut cross-border transaction costs. The central banks agreed to conduct further joint work, including “exploring business cases and connections to other platforms”.
The PBoC has been one of the fastest-moving central banks when it comes to CBDC. It conducted closed pilot tests in April 2020 and then began public trials in Shenzhen in October. Users can open a digital yuan account on their mobile phones, provided by one of four major commercial banks.
The Central Bank of the UAE, meanwhile, has been scaling up its ambitions on financial technology, as part of its broader push to establish itself as a leading central bank. It created a fintech office in November and, in December, said a cross-border CBDC with Saudi Arabia was viable. The two Gulf States have been collaborating on CBDC since 2019.
The BIS innovation hubs have been supporting central banks’ work on a range of financial technologies. Hubs were first launched in Switzerland, Hong Kong and Singapore, with new centres set to open in the coming months in Toronto, London and Stockholm. Another centre will operate jointly between Paris and Frankfurt. The BIS has also formed a “strategic partnership” on technology with the New York Fed.
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