Hong Kong, China, Thailand and UAE explore new uses of ‘mBridge’ digital currency project, including securities settlement

November 5, 2021

Georgina Lee, the South China Morning Post

A multi-country central bank digital currency project involving mainland China, Hong Kong, Thailand and the United Arab Emirates is looking at various options to expand its use, including capital market transactions, which could cut the settlement time for securities traded between them to a matter of seconds, top officials said.

The possible uses for the “mBridge” digital currency platform is being expanded to 15, which now involves 22 private sector participants, top central bank officials from the participating states said during Hong Kong FinTech Week on Thursday.

The project’s original scope involved building a common platform to help cut settlement time and costs associated with cross-border payments. Currently most currency transactions are settled on a “T+2” basis, or two days after a trade is concluded. But blockchain technology has enabled near real-time settlement by reducing the layers of middlemen involved in processing the transaction.

The prototype has achieved good traction due to the strong political commitment from the four central banks, said Colin Pou, executive director of financial infrastructure at the Hong Kong Monetary Authority. “Also, blockchain provides the right technological tool to tackle issues that we could not handle in the past,” he said.

An HKMA official said the mBridge digital currency project has achieved good traction due to the strong political commitment from the four participating central banks.

An HKMA official said the mBridge digital currency project has achieved good traction due to the strong political commitment from the four participating central banks. Apart from settling capital market transactions such as corporate bond issuance, the other potential applications include cross-border fund transfers linked to insurance transactions, e-commerce and wealth management products, according to the Bank of International Settlement Innovation Hub Centre in Hong Kong, which is providing support for the mBridge project.

The project is designed to target the pain points of the traditional correspondent bank arrangement, whereby processing fees for cross-border fund transfer for retail users can on average amount to as much as 7 per cent of a transaction’s value, according to the World Bank. With mBridge, that cost can cut by up to half, according to a report released by these four central banks in September.

Maintaining a high level of user privacy will also be a priority, according to Mu Changchun, director general of the People’s Bank of China’s (PBOC) digital currency institute.“Based on its design, mBridge has a strong capability in privacy protection,” said Mu, adding that this could be achieved as transactions done on the platform will be decoupled from the end users’ identity.

He also provided an update on China’s sovereign digital currency project. Since the roll-out of a pilot programme of the digital yuan or e-CNY in late 2019, digital yuan transactions have reached 62 billion yuan (US$9.7 billion), Mu said. About 1.6 million merchants across a wide range of businesses accept the “e-CNY” and it can also be used to pay for utility, transport and government services in many mainland cities.

When the digital yuan was first mooted by the PBOC in 2014, it was originally designed for small value retail transactions only, he said. With PBOC joining the mBridge project in February this year, the potential use of the digital yuan has been expanded.

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Given the strong flow of trade between China, Hong Kong, Thailand and the UAE, which amounted to US$780 billion last year, the UAE sees a lot of relevance in mBridge, said Shu-Pui Li, an adviser to the UAE central bank governor.

The UAE is the top exporter of oil to China, while the Middle East nation imports finished goods and food products from its partners.

“The UAE buys resin from China, but the payment is made to Hong Kong [entities], not [entities] located in the mainland China. So we see a strong business case for [linking up with] the four jurisdictions,” he said.

This article appeared in the South China Morning Post print edition as: New uses eyed for central bank digital currency project

Copyright © 2021 South China Morning Post

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