Project mBridge, a collaboration between four central banks and the Bank for International Settlements (BIS) Innovation Hub Hong Kong Centre, has completed a successful pilot involving the use of central bank digital currencies (CBDCs) by commercial banks to conduct real-value transactions across borders.

The large-scale pilot, which ran from August 15 and September 13, 2022, saw 20 commercial banks from Hong Kong, Thailand, Mainland China and the United Arab Emirates (UAE) use the mBridge platform to conduct 164 payment and foreign exchange (FX) transactions.

The pilot represented the largest cross-border CBDC pilot to date, BIS said in its project report, totaling over US$12 million worth of CBDCs issued onto the platform, over US$22 million of payments and FX PvP instantly settled across borders, and the greatest number of direct pilot participants.

mBridge is a platform based on a new blockchain called the mBridge Ledger. It’s custom-built for real-time, peer-to-peer (P2P), cross-border payments and FX transactions using CBDCs.

The ambition behind Project mBridge is to develop a common multi-CBDC platform that allow for direct connectivity between central banks and commercial banks, enabling thus improved efficiency, cost savings and facilitating international trade flows.

Over a six week period, 20 of the world’s largest commercial banks participated in the pilot, settling real-value transactions on behalf of their corporate clients, which focused primarily on settlement for international trade, as well as interbank groups.

These transactions were settled in CBDC from each of the four participating jurisdictions directly on the mBridge Ledger, a platform for implementation of multi-currency cross-border payments in CBDCs.

Three consecutive phases made up the pilot: the first phase involved only transactions between banks in Hong Kong and Mainland China; the second phase saw the addition of UAE banks; and the third and final phase included Thai banks.

Upon completion of the pilot, participating commercial banks from each jurisdiction shared their feedback covering the functional features of the platform, business use cases and compliance and legal considerations.

Overall, most respondents found the platform intuitive and easy to use, and believed taking part in the pilot helped them have a better understanding of how a CBDC platform can integrate into their workflow. All expressed interest in participating in future pilots.

The majority acknowledged the benefits of switching from existing cross-border payment frameworks to the mBridge platform in terms of speed, intermediary reduction, transparency, cost, availability and risk reduction.

Participants also shared input on the future directions of Project mBridge and the areas which they believe should be enhanced. Suggestions include adding liquidity management tools and transaction reporting/statements, enabling interoperability with domestic systems and supporting application programming interface (API) connectivity.

Key lessons

Overall, the pilot successfully demonstrated that a shared platform on which participants conduct P2P payments directly in central bank money can help tackle some of the limitations of today’s cross-border payment systems. In particular, it proved that the mBridge platform is able to improve payment speed and efficiency, reduce settlement risks, and support the use of local currencies in international payments, the report says.

The pilot’s real-world setting provided numerous lessons in areas like platform design and the constraints imposed by incumbent systems, it says. It also brought to light a range of policy, legal and regulatory considerations.

For one, the cross-border use of CBDCs and broadening direct access to central bank money could hamper central banks’ ability to maintain monetary and financial stability notably. Risks include increased currency substitution, volatile capital flows, and balances of domestic money moving offshore.

Data privacy and governance are other important considerations, the report says. This include how data and information should be shared among the participants and where confidential data should reside.

Given that each jurisdiction has different standing rules and regulations, a multi-jurisdictional CDBC platform raises different legal questions and challenges in each jurisdiction. For example, a CBDC can have a different legal categorization from one country to another. Privacy laws can also differ.

Looking ahead

Moving forward, BIS said Project mBridge will continue to work on its multi-CBDC cross-border payment platform, focusing on the user requirements, technical specifications, and governance framework needed for interoperable CBDCs. The goal is to move from the current pilot phase towards a minimum viable product, and eventually, a production-ready system. The team said it hopes to produce a product with enough features to be used by early adopters in the year ahead.

In 2023 and 2024, the roadmap for Project mBridge will include achieving automated interoperability with domestic payment systems, introducing liquidity management tools such as transaction queueing and priority management, adding more jurisdictions and currencies, and exploring more use cases – four suggestions made by participants of the pilot.

Other areas of focus will include integrating FX price discovery and matching into the platform, evaluating the role of central bank participants in providing liquidity, improving data privacy-preserving tools, continuing to develop the legal framework and platform terms and conditions, and exploring more services that the private sector can add to the platform.