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Chinese banks promote involvement in mBridge cross border CBDC

Multiple Chinese banks announced their involvement in the mBridge cross border central bank digital currency (cross border CBDC) trials after the initiative launched its minimum viable product (MVP) last week. At least nine Chinese institutions are involved in the project, although that figure might now expand with the MVP.

Image Copyright: liveincosmos / 123rf, BIS

The project uses multiple wholesale CBDCs to make cross border payments faster and cheaper. It’s a joint initiative from the BIS Innovation Hub and the central banks of Thailand, Hong Kong, China and the UAE. Saudi Arabia joined last week.

The Bank of China was the first bank to acknowledge the MVP stage of the project. As part of its statement it confirmed that it was the Chinese bank involved in the very first live transaction between the UAE and China in January. That wasn’t surprising given a cross border CBDC agreement was signed in October involving the Bank of China and First Abu Dhabi Bank (FAB) on the UAE side.

The Agricultural Bank of China said it conducted multiple mBridge trials involving real transactions during early May across 11 Chinese regions.

Both of these big four banks were part of the seven institutions announced as mBridge participants in 2022. The others were the Bank of Communications, China Construction Bank, ICBC, the Postal Savings bank and the China Foreign Exchange Trade System.

A relatively late mBridge joiner in 2023 was Industrial Bank, which also stated it made several live transactions this year, including for goods and services trade payments as well as international interbank transfers.

Each country can choose how to connect to mBridge. In China’s case it has connected its digital RMB system, so incoming and outgoing transfers are funded in that manner.

“As the Currency Bridge enters the minimum viable product (MVP) stage, our bank will continue to fulfill its responsibilities as a digital RMB operating institution, work with partner banks and corporate clients to explore and improve the cross-border financial service solutions of the Currency Bridge, and help promote high-level financial opening-up,” said the person in charge of the Digital RMB Department of Industrial Bank.

What's mBridge?

Project mBridge is the result of extensive collaboration starting in 2021 between the BIS Innovation Hub, the Bank of Thailand, the Central Bank of the United Arab Emirates, the Digital Currency Institute of the People's Bank of China and the Hong Kong Monetary Authority. The Saudi Central Bank is joining mBridge as a full participant. There are also now more than 26 observing members. 

The project aims to tackle some of the key inefficiencies in cross-border payments, including high costs, low speed and operational complexities. It also addresses financial inclusion concerns, particularly in jurisdictions where correspondent banking (which connects countries to the global financial system) has been in retreat, causing additional costs and delays. Multi-CBDC arrangements that connect different jurisdictions in a single common technical infrastructure offer significant potential to improve the current system and allow cross-border payments to be immediate, cheap and universally accessible with final settlement. 

A platform based on a new blockchain – the mBridge Ledger – was built to support real-time, peer-to-peer, cross-border payments and foreign exchange transactions. In 2022, a pilot with real-value transactions was conducted. Since then, the mBridge project team has been exploring whether the prototype platform could evolve to become an MVP – a stage now reached. 

To achieve this, the four founding participant central banks and monetary authorities have each deployed a validating node, while commercial banks have conducted more real-value transactions in preparation for the MVP release. In tandem, the project steering committee has created a bespoke governance and legal framework, including a rulebook, tailored to match the platform's unique decentralised nature.

The MVP platform is enabled to undertake real-value transactions (subject to jurisdictional preparedness) and is also compatible with the Ethereum Virtual Machine. This allows it to be a testbed for add-on technology solutions, new use cases and interoperability with other platforms.

As of June 2024, the observing members to Project mBridge include: Asian Infrastructure Investment Bank, Bangko Sentral ng Pilipinas; Bank Indonesia; Bank of France; Bank of Israel; Bank of Italy; Bank of Korea; Bank of Namibia; Central Bank of Bahrain; Central Bank of Chile; Central Bank of Egypt; Central Bank of Jordan; Central Bank of Malaysia; Central Bank of Nepal; Central Bank of Norway; Central Bank of the Republic of Türkiye; European Central Bank; International Monetary Fund; Magyar Nemzeti Bank; National Bank of Cambodia; National Bank of Georgia; National Bank of Kazakhstan; New York Innovation Centre, Federal Reserve Bank of New York; Reserve Bank of Australia; South African Reserve Bank; and World Bank.

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