Hong Kong, China, Thailand and UAE explore new uses of ‘mBridge’ digital currency project, including securities settlement

A multi-country central bank digital currency project involving mainland China, Hong Kong, Thailand and the United Arab Emirates is looking at various options to expand its use, including capital market transactions, which could cut the settlement time for securities traded between them to a matter of seconds, top officials said.

The project’s original scope involved building a common platform to help cut settlement time and costs associated with cross-border payments. Currently most currency transactions are settled on a “T+2” basis, or two days after a trade is concluded. But blockchain technology has enabled near real-time settlement by reducing the layers of middlemen involved in processing the transaction.

The prototype has achieved good traction due to the strong political commitment from the four central banks, said Colin Pou, executive director of financial infrastructure at the Hong Kong Monetary Authority. “Also, blockchain provides the right technological tool to tackle issues that we could not handle in the past,” he said.

Apart from settling capital market transactions such as corporate bond issuance, the other potential applications include cross-border fund transfers linked to insurance transactions, e-commerce and wealth management products, according to the Bank of International Settlement Innovation Hub Centre in Hong Kong, which is providing support for the mBridge project.

The project is designed to target the pain points of the traditional correspondent bank arrangement, whereby processing fees for cross-border fund transfer for retail users can on average amount to as much as 7 per cent of a transaction’s value, according to the World Bank. With mBridge, that cost can cut by up to half, according to a report released by these four central banks in September.