Photo taken on September 4, 2022 shows that a visitor is viewing the exhibition booth of the Digital Currency Institute of the People's Bank of China during a thematic financial service exhibition of the 2022 China International Fair for Trade in Services (CIFTIS) held in Beijing. (Xinhua/Ju Huanzong)
BEIJING, June 12 (Xinhua) -- When cross-border settlement facilitation arouses increasing attention among countries around the world, developing central bank digital currency (CBDC) is of rising importance in addressing related issues as a viable solution.
On June 5, mBridge, a multi-CBDC project, was announced to have reached the minimum viable product (MVP) stage, which caught much market attention, according to news posted on the website of the People's Bank of China (PBOC).
The mBridge, whose project team now consists of the BIS Innovation Hub Hong Kong Centre, the Bank of Thailand, the Digital Currency Institute of the PBOC, the Central Bank of the United Arab Emirates, and the local monetary authority of China's Hong Kong Special Administrative Region - Hong Kong Monetary Authority (HKMA), is dedicated to building a CBDC-centred cross-border payment platform featuring high efficiency, low cost, high scalability and regulatory compliance.
-- A prelude to foreseeable formal operation
Generally, an MVP stage refers to the fact that the basic version of a product is capable of providing sufficient functions for early users to pool constantly feedback for further function optimization before its formal operation.
The mBridge's reaching MVP stage here stands for access to real-value transactions for the project's participating institutions in countries and regions where the above-mentioned central banks and local monetary authority are situated, foretelling a foreseeable countdown of its formal operation.
Zheng Lei, chief economist at Samoyed Cloud Technology Group Holdings Ltd. told media that mBridge can be regarded as a new type of international trade settlement and clearing system and its difference from others lies in employing decentralized and the CBDC technologies and building the system on distributed ledger technology (DLT) to enable instant cross-border payment and settlement.
The mBridge project was initiated in 2021 and since a pilot was conducted in 2022, the three founding central banks and HKMA have each deployed a validating node in their respective jurisdictions. They, together with the BIS Innovation Hub, have also formulated a fit-for-purpose governance framework and comprehensive legal framework, including a rule book.
Meanwhile, participating commercial banks in Thailand, the UAE, and China have used the MVP platform to conduct real-value transactions in preparation for the MVP release.
By early June, there were more than 26 observing members for mBridge, including the Asian Infrastructure Investment Bank, Bank of France, Bank of Korea, International Monetary Fund, etc.
-- Higher efficiency expected in cross-border payment
Currently, high costs, low efficiency and non-transparency are the three major problems of broad concerns in cross-border payment around the world.
The mBridge, which is mainly used in cross-border payment at present, is different from other systems of the type such as the SWIFT and CIPS as it adopts technologies and currency forms different from those of SWIFT and CIPS.
Thanks to its decentralized payment, settlement and clearing, mBridge, whose system building can be regarded theoretically as fixed-asset investment and may demand greater investment than traditional systems, is characterized by its instant, peer to peer, fast and highly efficient transactions with unchangeable recording, noted Zheng.
As a brand new system, mBridge enables peer to peer trading without participation of third party intermediaries, said Zhang Ming, deputy head with the Institute of Finance & Banking under the Chinese Academy of Social Sciences in a previously-publicized article.
Despite the use of digital currencies in transactions between central banks in the mBridge system, no currency transfer but only bookkeeping is involved and this type of bookkeeping is very precise, introduced Zhang, highlighting in his article that using smart contracts can also fend off false transactions.
Based on the real-value transaction data, mBridge can tackle at the fastest speed a cross-border payment transaction within seven seconds while there is usually a delay of 3-5 days between cross-border payment and settlement via correspondent banks.
A report with BIS showed that using mBridge to conduct a cross-border payment transaction can save nearly a half of the costs done through other channels and means a leapfrog improvement over the traditional correspondent banking mode.
-- Participation of more institutions encouraged to craft influential cross-border payment infrastructure
In September 2022, mBridge completed the first real transaction scenario-based pilot testing and 20 commercial banks from Thailand, the UAE and China took part in the six-week-long pilot testing.
In aggregate, these banks finished 164 cross-border payment and foreign exchange payment-versus-payment (PVP) transactions and related transaction value exceeded 150 million yuan or its equivalent.
At present, mBridge has reached the MVP stage and more real-value transactions are expected to be completed through the platform to provide participating institutions with faster, cheaper and safer cross-border payment and settlement services.
Pursuant to news released by BIS, mBridge 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.
For next stage, mBridge welcomes participation of more monetary authorities, commercial banks, and enterprises so as to craft the internationally influential cross-border payment infrastructure.
(Edited by Duan Jing with Xinhua Silk Road, duanjing@xinhua.org)
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