Head of China’s digital yuan addresses blockchain’s role in mBridge, pushing digital currencies beyond their borders

In a FinTech Week panel discussion, Mu Changchun discussed the cross-border mBridge project, which could show how Beijing may internationalise the yuan

Tight capital controls have long hindered China’s efforts to internationalise its currency, but digital currencies offer to levers to maintain control

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The digital yuan is seen as one way China could further internationalise its currency while also maintaining capital controls at home. Photo: Shutterstock

Published: 2:00pm, 2 Nov 2022Updated: 3:04pm, 4 Nov 2022

While the People’s Bank of China (PBOC) has given no indication of what role blockchain plays in its digital yuan (eCNY), if any, distributed ledger technology (DLT) is playing a central role in the slow internationalisation of the yuan.

In a FinTech Week panel discussion on Tuesday about mBridge, the largest cross-border central bank digital currency (CBDC) project, Mu Changchun, director of the PBOC’s Digital Currency Research Institute, explained how the platform is designed to allow participation by central banks whether or not they have already established their own domestic CBDC system, possibly negating the need for dollars in foreign exchange.

“You can also adopt these existing traditional payment systems such as RTGS [real-time gross settlement] or FPS [Faster Payment System], so that central banks or monetary authorities can issue their own CBDC on mBridge without establishing their own CBDC system,” Mu explained. “For example, mBridge CBDCs can be issued with the same amount of funds deducted from the relevant bank accounts or reserve accounts in the RTGS system.”

Mu Changchun, director general of the digital currency project at the People’s Bank of China, appearing remotely while speaking on a panel discussion about the cross-border digital currency settlements platform mBridge.

Despite DLT being “not so perfect for a payment system”, Mu said that it has proven beneficial when there are “so many parties involved”. “In order to solve the heterogeneous issues or the trust issues, a DLT is perfect for self-management or autonomous management,” he said.

The mBridge is a joint project between the PBOC, Hong Kong Monetary Authority (HKMA), Bank of Thailand, Central Bank of the United Arab Emirates (UAE), and the Bank of International Settlements’ Innovation Hub Hong Kong Centre. It has been a closely watched experiment as the only large-scale use of blockchain to settle international payments.

The PBOC said in September that an mBridge trial running from August 15 to September 23 saw 20 commercial banks transfer 150 million yuan (US$22 million) across 160 payments, and 80 million yuan worth of digital fiat was issued onto the platform.

The success of mBridge, which stands for multiple-CBDC Bridge, is seen as a possible avenue for Beijing to push yuan internationalisation while maintaining tight control. The goal of a more international yuan has long been hampered by tight domestic capital controls, which helps reduce the risk of capital flight but makes the yuan less useful for foreign exchange.

International settlements in yuan have already been rising over the past couple of years. The share of China’s trade settled in yuan had reached nearly 30 per cent by August, up from less than 20 per cent two years before.