Last year, the Hong Kong Monetary Authority (HKMA) said that the mBridge DLT solution for cross border payments would launch a minimum viable product (MVP) in the first half of this year. But this week a key partner, the BIS, would not be drawn on the timing. Other collaborators in the cross border central bank digital currency (cross border CBDC) platform are the central banks of China, Thailand and the UAE. Twenty-three additional central banks and the IMF are project observers.
Frankly, whether or when the mBridge MVP might launch may be a storm in a teacup. However, there are also questions regarding what happens after the MVP.
We’ll come back to the minor inconsistencies over the path forward. First, it’s worth reviewing the political context with the functional benefits already covered elsewhere. At a high level, mBridge enables fast and efficient cross border payments.
Geopolitics makes mBridge a controversial topic. The initiative can potentially be a Swift challenger in the realm of cross border payments. It could chip away at Swift’s dominance and reduce the use of the dollar in transactions that don’t involve the United States. If mBridge launches, it’s far too early to tell whether or not its impact will be significant.
China’s desire to diversify cross border payments
While China has its CIPS platform for cross border payments, the dollar still plays a significant role in international transactions. China has been talking about increasing the renminbi (RMB) share in its cross border transactions for years. Last year’s statistics showed a significant improvement, partly due to Russia’s current reliance on the renminbi for a considerable proportion of international payments.
In October 2023, the People’s Bank of China said that RMB usage in cross border transactions grew 23% during the first nine months. Additionally, the RMB (rather than the dollar) became the largest cross border currency for Chinese transactions.
Given the fragile geopolitical situation, China is keen to reduce its dependence on the dollar. That’s particularly the case for regional commercial transactions where the United States has no involvement other than its currency being used for settlement.
However, mBridge is just one of the tools in China’s toolbox, although potentially an important one.
That’s what makes the BIS role in mBridge a controversial one.
The BIS role in mBridge
The BIS – the central banker for central banks – has its BIS Innovation Hub with locations dotted around the world. Each venue collaborates with the local central bank, the Hong Kong Monetary Authority, in the case of mBridge. One can imagine some internal debate at the BIS before it got involved in Project mBridge.
Looking at it from the perspective of the United States, it might not be keen on the BIS ‘helping’ with mBridge. However, given the BIS’s role as the global coordinator amongst central banks, an objective observer would view the BIS’s decision to engage with mBridge as the obvious one. With its global coordination role, the BIS should be adept at handling politics.
Another factor is the novelty of the BIS Innovation Hub. It’s only been around for four years, and this is one of the few projects with a potential path to production. Another initiative, Switzerland’s Project Helvetia for wholesale CBDC, is now running live transactions as part of a pilot for a limited period. However, Helvetia is a more straight forward project with far fewer participants. And it’s not controversial.
How soon is the mBridge MVP? Is there a next stage?
During the last several months, the Hong Kong Monetary Authority has made positive statements about launching the mBridge minimum viable product (MVP) and the path to commercialization. In contrast, the BIS is far more reserved.
In a speech in September 2023, Eddie Yue, CEO of the Hong Kong Monetary Authority, said, “Very soon we will launch what we call a minimum viable product (MVP).” He also stated the MVP would pave “the way for the gradual commercialisation of mBridge.”
Mr. Yue made similar comments to the South China Morning Post the next month, giving a timeline for the first half of 2024. In November, he told a Chinese forum that mBridge was about to enter the commercial application stage. This month, the HKMA posted a job advert that includes “technical tasks in the rollout of Project mBridge.”
After Mr. Yue’s first statement, the BIS released an update on mBridge, where the path forward was more guarded. It stated, “A next envisaged stage in this project is to see if (our emphasis) the platform tested can evolve to become a Minimum Viable Product (MVP).”
During a media briefing this week, Cecilia Skingsley, the head of the BIS Innovation Hub, was asked for an mBridge timeline. She confirmed that an MVP is part of the current Phase 3 of the project but would not commit to a timescale as there are too many outstanding issues.
“Once the MVP is finalized, we need to have a good look at the lessons learned and see together with the partner central banks, is there a next phase?” said Mrs Skingsley. “And what could that look like? That remains to be seen, but I think we are several months away from that conversation.”
What would a production project look like?
In the same media briefing, Mrs Skingsley was asked about BIS Innovation Hub experiments becoming real life applications. The question was unrelated to mBridge.
She gave the example of a supervisory tool – very different from mBridge – and how that might be rolled out. “Does it make sense to give it to one central bank, a coalition of central banks, or supervisory authorities? Or can we sell it to the private sector to offer it as a commercial tool if they haven’t already developed that,” said Mrs Skingsley. However, she noted that while the BIS Innovation Hub has some ideas about the handover process, others will decide. Perhaps the advisory committee of central banks?
Turning to mBridge, the decision process might be a little different. For starters, China’s Digital Currency Research Institute was responsible for developing the technical solution.
A big question is what happens if the BIS Innovation Hub suggests that mBridge should not proceed, but one or more of the central banks want to? We’d bet that the project will advance if it proves viable. It’s better for the BIS to be involved than not.
