What to know:
- mBridge nears commercial launch as China advances digital currency settlement plans.
- Central banks can use the platform to settle cross-border payments within seconds.
- Pilot programs have processed RMB 470 billion as mBridge moves beyond early testing.
China is nearing the commercial launch of mBridge, a digital payments network built to improve cross-border settlements. The platform could reduce dependence on legacy banking routes and the U.S. dollar. According to the report, the formal rollout preparations have reached an advanced stage.
The project has support from the central banks of China, Hong Kong, Thailand, the United Arab Emirates, and Saudi Arabia. A Hong Kong-based entity is expected to oversee operations once the system moves into commercial use. The plan marks a major step in China’s digital currency strategy.
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mBridge Payment System Targets Lower Costs and Faster Transfers
The design of mBridge seeks to transform the entire process of settlement for wholesale cross-border payments. Typically, wholesale payments are conducted via correspondent banks, which causes delays and increased costs.
The innovation makes use of a blockchain ledger that connects all central banks using the system directly.
The use of the mBridge ledger enables central banks to exchange digital currencies among each other. As a result, the innovation eliminates numerous middlemen during the process of transactions.
Additionally, the nations that are participating in the project can also conduct payments in their digital currencies.
People familiar with the project said foreign exchange transactions that typically take days can now be made within seconds. The transaction fee will also reportedly be just about half of what is usually charged by other payment systems.
This might enable the project to find application among smaller and medium-sized businesses engaged in cross-border payments.
The initiative has been launched amidst efforts from the Chinese authorities to increase the international use of the digital yuan.
mBridge May Reduce Dollar Role in Cross-Border Payments
China has already introduced another mechanism referred to as the Cross-Border Interbank Payment System, which is considered an alternative to SWIFT. However, mBridge is focused on digital currency settlement rather than standard bank messaging.
According to the analysts, the system can potentially help reduce the intermediary position of the US dollar in certain foreign exchange transactions. This factor may be important for the states connected to China’s Belt and Road Initiative.
Moreover, it corresponds to the Chinese authorities’ desire to create new financial routes independent of dollar-based systems.
As stated by Tom Keatinge, founding director of the Centre for Finance and Security at RUSI, the initiative should be considered in the context of the global payment infrastructure race. In his opinion, the Chinese authorities are trying to promote their digital currency via projects like mBridge.
It initially appeared as a collaboration of the Hong Kong Monetary Authority and the Bank of Thailand.
In 2021, mBridge became more ambitious due to the participation of the Bank for International Settlements, the People’s Bank of China, and central banks of several Middle Eastern states. The BIS ceded management of the platform to central banks involved in the project in 2024.
The future is now being shaped by China along with its partners. The number of transactions that have taken place through pilot programs totals RMB 470 billion ($69 billion). The figures suggest that the platform has moved from an early stage of testing.
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