The People’s Bank of China recently announced that its Governor, Pan Gongsheng, signed a memorandum of understanding with Governor Shethabu Suthiwanalyubu of the Bank of Thailand. The agreement established a ‘Cooperation Framework for Bilateral Local Currency Transactions’, and the two countries also discussed enhancing their financial cooperation. Central bank digital currency (CBDC) was not explicitly mentioned in the announcement.
The mBridge project, a cross-border CBDC initiative, was originally launched by the Bank of Thailand and the Hong Kong Monetary Authority (HKMA) to make faster, cheaper international payments. The central banks of China and the UAE subsequently joined the project, which now has over 25 observers, including central banks from around the world, the World Bank, and the IMF.
Last year, the HKMA discussed launching a minimum viable product (MVP) for mBridge in the first half of this year, considering it a preliminary step towards commercialization. However, the Bank for International Settlements (BIS) Innovation Hub, which coordinates the project, has been more cautious about setting a timeline. In January, the BIS Innovation Hub leadership indicated that many unresolved issues remain, making it premature to confirm a timeline, never mind a post-MVP stage.
For China, mBridge serves multiple strategic objectives. The country aims to increase the use of the renminbi in trade payments, aligning it more closely with China’s share of global trade. Additionally, in light of sanctions against Russia involving Swift, China recognizes the importance of diversifying its cross border payment systems. As a founding member of BRICS, which also supports local currency payments, the group has discussed initiatives similar to mBridge, such as a proposed “BRICS Bridge.” Notably, China plays a key role in the technological development of mBridge.
Despite its technological capabilities, mBridge remains a tool. It requires policy agreements to facilitate local currency payments. Last year we believe the UAE, another participant in mBridge, received its first local digital currency payment from China, receiving the pilot digital RMB (eCNY). However, a few months later it used mBridge to send dirhams to China.
