China, Hong Kong, Thailand, and the United Arab Emirates announced they will be testing central bank digital currencies in cross-border payments.
Why it matters: The collaboration between the four economies is a milestone in the digital yuan’s development. Nailing down cross-border payments is a key step in achieving a long-term strategic goal of using the digital RMB to internationalize China’s currency.
- All four governments are exploring digital currencies. The digital yuan is the closest of the four to launch, making it likely to take center stage in the trials.
Details: The project, dubbed m-CBDC Bridge, will explore the potential of blockchain in international CBDC transactions. It aims to develop a proof-of-concept prototype that uses the distributed ledger technology to process in real time cross-border transactions that involve multiple currencies, a joint press release said.
- The Bridge will also explore possible use cases in cross-border payments using domestic and foreign currencies.
- The four central banks want to “foster a conducive environment” for more countries to join the project, helping to determine the feasibility of using blockchain in international trade settlements and capital market transactions.
- China is participating through the Digital Currency Institute at the People’s Bank of China (PBOC).
Context: The Bank of Thailand and Hong Kong’s Monetary Authority completed a similar test in Q4 2019, called Project Inthanon-LionRock.
- Hong Kong’s Monetary Authority said in December that it was discussing testing cross-border CBDC transactions with the PBOC.
- The RMB has been slowly gaining ground in international payments; its share of global payments in January was 2.42%, compared with 2.15% in the same time period last year, data from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) said.
- The PBOC has been conducting closed-door trials of the digital RMB since April, and has completed six public trials in Shenzhen, Suzhou, Beijing, and Chengdu since October.
READ MORE: UPDATED: We got some digital yuan!
CLARIFICATION: This article was revised Feb. 25, 2021, to add context on the trial participants.