The Bank for International Settlements releases the first phase report of the multilateral central bank digital currency bridge project

Recently, the Bank for International Settlements (BIS) and the Digital Currency Institute of the People’s Bank of China, the Hong Kong Monetary Authority, the Bank of Thailand and the UAE Central Bank jointly released the first phase report of the multilateral central bank digital currency bridge (mBridge) project.

It is understood that the mBridge project is jointly launched by the Bank for International Settlements (Hong Kong) Innovation Center, the People’s Bank of China Digital Currency Research Institute, the Hong Kong Monetary Authority, the Bank of Thailand, and the UAE Central Bank to explore the application of central bank digital currencies in cross-border payments.

According to the report, the multilateral central bank digital currency model (mCBDC) that uses central bank digital currency and distributed ledger technology can help achieve faster, cheaper and safer cross-border payments and settlements. In mBridge’s public platform, a common prototype platform for multiple official digital currency settlements can complete international transfers and foreign exchange operations in a few seconds, instead of using the existing commercial bank network, which will save nearly half of the cost, compared with the traditional Compared with the correspondent bank model, a leap-forward improvement has been achieved.

Cross-border payment will save nearly half of the cost

The mBridg platform can integrate the digital currencies of various countries into a common interoperable platform, providing a technically clean platform for central banks of various countries. According to the latest annual economic report of BIS, mCBDC adds digital currencies of various countries to a common interoperability platform, providing the greatest potential for improving the limitations of today’s systems. They provide a “fresh start” for the central bank without being restricted by traditional technology.

The mBridge project is based on preliminary investigations conducted by the Inthanon-LionRock project of the central banks of Hong Kong and Thailand. By testing key functions such as transaction privacy, foreign exchange matching, monitoring and compliance, it has proved the feasibility of a common CBDC platform between the two jurisdictions for the first time .

BIS stated, “Based on the experience of the first phase of Inthanon-LionRock, the other work of central banks and the research of the Bank for International Settlements, we are proud to take a new step towards the mission of the G20, which is to create cheaper, faster and more affordable Flexible cross-border payments.”

The report stated, “As more and more partners join, by building the Inthanon-LionRock Besu blockchain, we continue to expand our practical experience in different aspects of digital currency and promote distributed ledger (DLT) as a cross-border payment technology. The ability to push hands.”

Through the Inthanon-LionRock Phase 2 (IL2) prototype, it has been proven that DLT can significantly increase speed, reduce costs, provide operational efficiency and the flexibility of complex cross-border payment flows. The report said, “Our work further demonstrates that innovative modular solutions can allocate liquidity, resolve deadlocks, provide competitive foreign exchange, enforce compliance and regulatory oversight, and support necessary future services.”

Encourage commercial banks and other market participants to experiment

Aspects that need attention in the process of multilateral central bank digital currency projects. BIS stated that, first of all, it cannot cause damage to the international monetary system. “Official digital currencies should continue to support the healthy development of the international monetary system. Digital currencies provided by a central bank should not undermine the sovereignty of other central currencies and their ability to fulfill their monetary and financial stability missions. At the same time, they should also protect the legitimate rights of consumers, such as Data privacy and security, and promote fair competition.”

Secondly, in terms of compliance, BIS pointed out that cross-border payment arrangements related to digital currencies should have a sound legal system and stable operation system, and comply with the regulations and laws of relevant jurisdictions, such as fund management and foreign exchange mechanisms. Realize the synchronization of information flow and capital flow, promote the development of cross-border trade, promote the development of the real economy, and meet the regulatory requirements for anti-money laundering and combating terrorist financing.

In terms of interoperability, BIS emphasizes that the development of digital currency should give full play to the role of existing infrastructure and use financial technology to achieve interoperability between digital currency systems in different jurisdictions and between digital currency systems and traditional payment systems. . At the same time, central banks should also facilitate the orderly development of the payment system and prevent market fragmentation.

“The above principles are to ensure that mBridge complies with the monetary sovereignty of participating jurisdictions, adapts to the legal and regulatory requirements of each participating jurisdiction, supports interoperability with existing and future systems, and enables each participating jurisdiction to create its own The building block (called the Lego brick method), and enables each jurisdiction to experiment, pilot, and eventually enter production at its own speed.” The report added.

As for the future development map. The report said that considering this progress, there is still a lot of work to be done to develop the prototype into a production solution. Within the mBridge governance structure, the sub-committees have already started this work and will continue to establish and develop their efforts under the guidance of the steering committee chaired by BIS. At present, legal, policy, governance and business issues are being classified and analyzed, and priorities are determined for future research and development, with the focus on promoting life and production use.

BIS said that mBridge will continue to explore the limitations of the existing platform in the future, involving liquidity management and the scalability and performance of DLT when processing large transaction volumes. In addition, project transmission will also include policy requirements and measures to ensure compliance with jurisdiction-specific regulations, as well as testing and investigating appropriate governance models. It is expected that in the next phase, the project will encourage commercial banks and other market participants to experiment in a safe and controllable environment.

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