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.

Eliza Gkritsi

Eliza was TechNode's blockchain and fintech reporter until July 2021, when she moved to CoinDesk to cover crypto in Asia. Get in touch with her via email or Twitter.