(ATF) People’s Bank of China (PBOC) has joined a digital currency cross-border payment project with several other central banks, which is seen as an important step by China’s central bank to boost the digital yuan’s reach.
In a statement posted on the PBoC’s website on Wednesday, the bank said its Digital Currency Institute, and the Central Bank of the United Arab Emirates (CBUAE), joined the Multiple Central Bank Digital Currency (m-CBDC) Bridge, a digital currency project for cross-border payments initiated by the Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BoT).
Supported by the Bank for International Settlements Innovation Hub Centre in Hong Kong, the m-CBDC project aims to develop a proof-of-concept prototype to facilitate real-time cross-border foreign exchange payments on distributed ledger technology (DLT), the bank said.
Distributed ledgers are databases that are replicated and shared among the entities involved and record transactions. They’re not necessarily owned by a single central bank but are a shared ledger of activity. DLT is seen as a way to potentially help make cross-border payments more efficient.
Cross-border payments are traditionally slow, expensive and prone to complex regulatory compliance issues. The participants believe that central bank digital currencies could speed them up, while lowering the cost and making transactions more transparent.
Based on the results of the project, the central banks may explore business use cases, such as cross-border fund transfers, international trade settlement and capital market transactions, the PBoC said.
Digital currencies gaining steam
Central bank digital currencies have been gaining steam with monetary authorities around the world.
In October of last year, the Bahamas launched the world’s first central bank digital currency called the “Sand Dollar” for its nearly 393,000 residents.
Following Bahamas’ footsteps, China and Uruguay have achieved the most progress in central bank digital currency implementation.
Over the last few months, China has been handing out tens of millions of digital yuan as money gifts to citizens in several major cities, such as Shenzhen, Suzhou, and Beijing, but trials have focused on domestic use of the digital currency.
Chengdu announced the launch of a a new trial this week, giving out electronic “red packets” totaling 40 million yuan ($6.2 million) of worth to citizens.
While China has been a relatively cashless society and some users, after tests, declared that the central bank digital currency is “no different” from other payment methods such as Tencent’s WeChat Pay or Ant Group’s Alipay, industrial professionals see a much larger role in digital yuan.
Wang Zhicheng, Associate Professor of Finance at Guanghua School of management, Peking University, believes joining the project is an important step to boost digital yuan’s international reach.
“At present, the field where digital currency can play a most important role should be cross-border payments. Using blockchain technology, digital currencies can form internationally integrated financial infrastructures that go beyond countries’ national sovereignty,” he said.
He noted that countries participating in the project are those that have joined the One Belt One Road Initiative and have close trade relations with China, while Hong Kong acts as a bridge.
The digital yuan will help increase oversight of money flows, while also raising the efficiency of cross-border payments and facilitate yuan internationalization, HSBC said in a recent report.
With the world’s second largest economy deciding to establish its own CBDC, more central banks are paying attention to the phenomenon.
At the end of last year, the European Central Bank launched an open survey to its citizens asking them about their own CBDC, which would be called “digital euro”, and more than 8,000 citizens of the European Union participated.
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