Hong Kong to onboard new central bank partners to mBridge CBDC platform, launch minimum viable product
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(Kitco News) - The Hong Kong Monetary Authority (HKMA) is preparing to expand its mBridge central bank digital currency (CBDC) project amid the growing push for globalization and a concerted effort by countries around the world to start transacting in currencies other than the U.S. dollar.
HKMA CEO Eddie Yue delivered the keynote speech at the 2023 Bund Summit in Hong Kong on Friday, where he outlined the central bank’s plans for an interoperable CBDC system in Hong Kong and said they are looking to onboard new central bank partners.
“Globalization has brought enormous benefits to emerging markets and helped keep global inflation in check,” Yue said. “The golden era of globalization, however, has given way to a gradual slowdown in global trade in goods after the 2008 financial crisis. It appears that this slowing down in global goods trade is likely to continue, leaving trade in services and other flows to pick up the baton in sustaining globalization.”
While global trade has slowed, Yue said that “a full-blown financial decoupling is also unlikely, given how highly interconnected the global financial system is.” He called on countries to develop “practical and pragmatic economic considerations” instead of opting for “protectionism and cross-border restrictions.”
He suggested that while some companies have moved to migrate production out of China, “it would be difficult for any wholesale relocation of [the] more sophisticated supply chain networks,” and said, “China is likely to play an even more significant role in shaping regional supply chains” moving forward.
Yue said that in order for Asia to benefit from the “reshuffling of global value chains” currently underway, four principles need to be followed: “Stay resilient by maintaining ample buffers and ensuring that their financial systems are resilient against shocks; Diversify trade into regions with high growth potential, such as Africa and the Middle East; Develop capacity, which includes grooming talent and developing both physical and digital infrastructure; and foster deep regional collaboration, especially in the fields of green technologies and enhancing the ecosystem of sustainable finance in the region.”
As trade and supply chain linkages in Asia become more integrated, Yue said local currencies will become more utilized in regional trade settlement and beyond, which means that the cross-border payments infrastructure needs to become more efficient to keep up with demand.
“It would be remiss of me not to talk about Hong Kong's unique advantages and how it can help meet the challenges ahead,” he said. “As well as building on our traditional role as a gateway between the East and West, if we are to capture growth opportunities offered by markets such as the ASEAN, the Middle East and Africa, we need to expand trade networks and improve logistic infrastructure.”
“To develop capacity and maintain its position as the leading offshore RMB business hub, Hong Kong is working hard on three fronts: liquidity, products, and infrastructure,” he said. “The enhanced Currency Swap Agreement with the People's Bank of China [PBOC] provides further liquidity support to the offshore market through the RMB liquidity facilities set up by the HKMA, to meet the growing business demand.”
Yue said the mBridge project – which is a collaboration between the Bank for International Settlements (BIS) innovation hub, the PBOC, the central banks of Thailand and the United Arab Emirates, and commercial banks from each of those jurisdictions – is a key piece in the HKMA’s plans for future expansion.
“Our latest pilot test has demonstrated that this wholesale central bank digital currency platform can speed up cross-border payments at reduced cost and with better transparency,” he said. “We are expecting to welcome more fellow central banks to join this open platform. And very soon, we will launch what we call a minimum viable product, with the aim of paving the way for the gradual commercialization of mBridge.”
Yue said the hope is that this “new innovative platform will help resolve longstanding pain points in cross-border payments and enhance the efficiency of the global value chain.”
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He noted that Hong Kong “recently issued the world's first tokenized government green bond,” and said the experience “offers a glimpse of the power of digitalization as an enabler of a greener, more inclusive, and more connected future.”
“Globalisation is now at a crossroads,” Yue said. “But with good preparation, the Asia region is well positioned to adapt to changes in the global trade landscape.”
Project mBridge was launched in 2021 in an effort to develop a platform to support real-time, peer-to-peer, cross-border payments and foreign exchange transactions using central bank digital currencies (CBDCs).
The mBridge platform is a subset of the larger Project Inthanon-LionRock, a distributed ledger technology (DLT) CBDC cross-border payment endeavor involving the Thai and Hong Kong central banks that launched in Sept. 2019.
Not everyone is excited about Project mBridge, however, including California Representative Maxine Waters, who warned during the recent House Financial Services Committee hearings related to a digital dollar that Project mBridge could be leveraged to evade economic sanctions. According to experts, the key to effective sanctions evasion by CBDCs is adoption.