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 countries 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.

  • The digital yuan is the closest of the four countries’ digital currencies 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!

Eliza Gkritsi

Eliza is TechNode's blockchain and fintech reporter. When she isn't obsessing over the rise of distributed ledger technology in China, she helps with editing.