The first pilot utilizing wholesale central bank digital currencies (Wholesale CBDC) for real-value cross-border payment transactions has been completed, according to Mr. Mathee Supapongse, Deputy Governor of the Bank of Thailand (BOT).
The BOT, with the UAECB, the BIS Innovation Hub Hong Kong Center (BISIH), the Digital Currency Institute of the People’s Bank of China, and the HKMA became the first bodies to adopt CBDCs. This development comes after the Hong Kong Central Bank and the BIS had also recently unveiled Project Dinamo a month prior.
BIS releases a report on the mBridge project
With its third report in as many days describing how commercial banks in four countries moved money via CBDCs, the Bank for International Settlements is on a roll. The details of the mBridge pilot project of the Bank for International Settlements (BIS) to use central bank digital currencies (CBDCs) for foreign exchange have been made public in the report. According to the report, the initiative, which was hailed as a success, used CBDCs and open ledger (blockchain) technology to facilitate cross-border payments between commercial banks in four jurisdictions.
Between August 15 and September 23, twenty commercial banks in Hong Kong, China, the United Arab Emirates, and Thailand carried out payment and foreign exchange payment-versus-payment transactions for the benefit of their corporate clients using the customized mBridge Ledger platform and CBDCs authorized by their respective central banks. The platform released more than $12 million, enabling more than 160 transactions totaling more than $22 million.
Real-time peer-to-peer transactions were carried out on the mBridge Ledger platform using a single platform and direct access architecture using the HotStuff+ consensus method. Additionally being evaluated is the Dashing dynamic-threshold consensus system.
Policy difficulties could be a problem
The initiative highlighted several policy difficulties. The project paper’s authors claim that the legal classification of a CBDC is the most urgent problem. They penned: The primary query is whether CBDC on the platform would be categorized as money, a symbol for monies held on deposit with the central bank, a debt, or something else.
According to the report’s author, the new technology created even more basic difficulties than that. The report suggests that to perform transactions on a shared ledger and provide foreign parties direct access to central bank funds, policy, data protection, and governance issues need to be further investigated. It further states that in 2023 and 2024, practical issues such as combining liquidity management and FX price discovery will be dealt with.
Implication for blockchain
According to BIS, CBDCs can reduce the cost of cross-border remittances by 50%. Recently, several papers have been prepared by the Hong Kong-based BIS Innovation Hub Center regarding the project. The Genesis 2.0 project aims to produce tokenized green bonds making retail and wholesale CBDCs the subject of separate studies by BIS and the HKMA.
The mBridge project will continue developing and testing the technology moving ahead, according to the bank of Thailand, improving current functionality and adding improved features to the platform while considering policy, regulatory, and legal concerns. The BOT will consider continuing trials in more practical contexts as CBDCs look to garner more banks engaging in its adoption.