The Hong Kong Monetary Authority (HKMA), Bank of Thailand, BIS Innovation Hub Hong Kong Center (BISIH), People’s Bank of China and the Central Bank of the United Arab Emirates have reveled findings from their joint Central Bank Digital Currency (CBDC) project.
Project Inthanon-Lionrock Phase 2 found that the prototype platform for multiple CBDC settlements is able to complete international transfers and foreign exchange operations within seconds, as opposed to the 3-5 days normally required.
The cost of such operations can also be reduced by up to half, according to the project’s report.
In particular, additional hypothetical currencies and jurisdictions were incorporated and critical features such as transaction privacy, foreign exchange matching, monitoring and compliance were tested.
This demonstrated the viability of a wholesale CBDC platform between Thailand and Hong Kong using distributed ledger technology (DLT) under a comprehensive and near real-world environment.
Central banks will also be able to manage the liquidity of their CBDCs on the prototype, monitor the flow and the balances of their issued CBDCs, enhance the level of privacy of the transactions, and automate certain compliance functions.
This led to subsequent third phase which has been renamed as the mBridge Project upon the joining of the Digital Currency Institute of the People’s Bank of China and the Central Bank of the United Arab Emirates, with support from the BIS Innovation Hub Hong Kong Center.
The mBridge Project seeks to develop a multi-currency cross-border payments platform between the four participating jurisdictions, broadening the project’s geographic scope and diversity of currencies and business use cases.
Going forward, the mBridge Project will continue to explore and conduct experiments to resolve existing limitations of the current system, related to privacy controls, liquidity management and the scalability and performance of DLT in handling large transaction volumes.
The project will also incorporate policy requirements and compliance with jurisdiction-specific regulations into the system, along with laying down appropriate governance for a more complex structure and controls.
Participating central banks will jointly evaluate the project and consider pursuing experiments with commercial banks and other market participants within a safe environment in the future.
The mBridge project is one of the initiatives under the HKMA’s “Fintech 2025” strategy, which, among others, aims to strengthen research work on CBDCs.
Through the mBridge project, the cross-border corridor network prototype built in the previous phase was further developed to support more currencies and interface with new or conventional domestic payment systems.
Howard Lee, Deputy Chief Executive of the HKMA, said,
“The mBridge project builds on our existing strengths and network in the global financial system, and helps keep Hong Kong in the forefront as digitalisation continues to make strides in the years to come.
The HKMA would continue to collaborate closely with the BISIH and peer central banks to broaden and deepen the research, which could also contribute to the global exploration for using CBDC to expedite cross-border payments.”
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