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
“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.”
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 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.
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Collaboration with the HKMA also shows how Hong Kong continues to promote itself as the bridge between China and the rest of the world.
As its participation in the mBridge project suggests, the HKMA has also been working on its own digital currency, but retail use – as allowed with the eCNY in several designated cities in China – remains years away, according to Nelson Chow, the HKMA’s chief fintech officer.
It will take a “couple of years” for both technical and legal reasons to launch a digital Hong Kong dollar (eHKD), Chow said in a panel discussion on retail CBDCs on Monday.
“We have to make sure that it’s safe and sound, that it is robust and it’s resilient,” he said. “Another aspect is actually legal. We have to go through possible legislative change and ensure that this e-Hong Kong dollar is fit for purpose.”
Chow described three phases of development for an eHKD: establishing the technical requirements, piloting and implementation. “We hope that rail one and two will equip us with sufficient maturity to go into rail three relatively quickly,” Chow said.
In trialling a wholesale CBDC, however, Hong Kong appears much further along as it works with mainland China, Thailand and the UAE.
“To me, the mBridge project … has shown an enormous potential for speeding up cross-border payments and reducing costs, and has shown at the same time that the central bank digital currency area goes beyond retail CBDCs, since wholesale CBDC projects like mBridge, whose platform mBridge Ledger is Blockchain-based, offer many opportunities as well,” Oriol Caudevilla, fintech and blockchain adviser and board director at the Global Impact FinTech Forum, said of the latest mBridge report.
Given the potential impact of a CBDC on monetary policy, financial stability was also a major theme in related panels in the first two days of FinTech Week events.
The mBridge report highlighted the legal issues this presents. Regulatory changes, the report notes, may be needed “to achieve full legal certainty and clarity”.
In the mBridge panel discussion, Mu also quoted from part of the report emphasising the autonomy of participating jurisdictions. The platform’s modular approach “allows participating central banks and monetary authorities to validate, adapt and extend functionality according to their different requirements and aims to support each jurisdiction’s autonomy in implementation in adoption of the platform”, he said.
Additional reporting by Xinmei Shen.