Author: Mike Ross
The Bank of International Settlements (BIS) has confirmed the successful end of its central bank digital currency (CBDC) pilot program. To encourage multi-currency cross-border transactions, the central banks of Hong Kong, Thailand, China, and the United Arab Emirates (UAE) collaborated on the pilot.
The mBridge experiment
The experiment, dubbed mBridge or mCBDC, lasted a month and had participants investigate the planned CBDC’s technical stack and the legal difficulties that may come from the project.
In a LinkedIn post, Daniel Eldan, Advisor and Solution Designer at BIS Innovation Center, stated that the system has issued over $12 million in value, with “over 160 cross-border payouts and FX (foreign exchange) money transfers totaling more than $22 million in value between 20 involved commercial banks.”
Economic growth through international transactions
Tayo Tunyathon, Senior Specialist on CBDCs at the Bank of Thailand, commented, “Happy to have been a team member in accomplishing this historic milestone!” “We are only now beginning to understand CBDCs’ potential for crossing boundaries and aiding trade/economic growth.”
Based on Eldan and Tunyathon, BIS Innovation will provide a thorough study upcoming month that will include the technical details of the mCBDC.
According to a report in June, the primary strategy of mCBDC would be with decentralized ledger technology and a “lego bricks” strategy to suit collaborating commercial banks.
The BIS has already undertaken several CBDC projects, including Jura, Dunbar, and Inthanon-LionRock2 (ILR2), emphasizing cross-border and international transactions.
CBDC advances in participating nations
The four countries involved have all shown interest in creating digital versions of their national currencies. The Hong Kong Monetary Authority stated that, after having the first rounds of discussions, it will take two to three years to establish the CBDC because of the legal and regulatory difficulties that must be overcome.
A pilot test has been prepared for Thailand, with Vachira Arromdee, deputy governor of the Bank of Thailand, emphasizing that retail CBDCs formed the “basis of the future banking industry.”
Global leaders have long prioritized boosting the effectiveness of international transactions.
Cross-border CBDC pilot efforts strive to reduce costs, speed up a settlement, and increase transparency by combining different currencies and assets into a single system with participants trading directly.
According to the Bank for International Settlements, those objectives were met in four significant small-scale studies (BIS). However, it is unclear if CBDCs will be the most effective method for improving cross-border settlement. Upgrades to current systems, for example, may be able to provide less-disruptive routes.
Conclusion
More central banks are launching CBDC pilot programs. The majority are focused on retail CBDCs aimed at the mainstream market. Four have already progressed from pilot initiatives to full-fledged launches. The apparent success of various pilot programs exploring cross-border payment and settlement has aided the use case for CBDCs. However, despite the numerous testing, officials are aware of the possible hazards of CBDC development, such as worries about confidentiality, safety, and energy-saving.