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A new cross-border payment solution mBridge is being explored by China, Thailand other others.
The payment bridge has a primary goal of bypassing Dollar settlement schemes.
A collaborative effort between China, Thailand, Hong Kong, and the United Arab Emirates (UAE) is swiftly advancing to create a digital prototype that could potentially challenge the dominance of the US Dollar (USD) in global finance.
This Beijing-backed project, known as mBridge, aims to develop a digital alternative for sending money across borders, bypassing the need for reliance on US banks.
The Promise of mBridge
The mBridge project has been under development publicly since 2017 and is being carried out in collaboration with the Bank for International Settlements (BIS), a prominent institution in global central-bank cooperation.
The purpose is to develop a digital platform that allows cross-border transactions using digital currencies (Central Bank Digital Currencies, or CBDCs), providing a potential alternative to the old dollar-based settlement system.
With an estimated $6.6 trillion of foreign exchange transactions daily, and approximately half of the $32 trillion in global trade each year invoiced in dollars, mBridge could play a significant role in reshaping the landscape of international finance.
The major goal of mBridge is to allow big transfers and foreign exchange transactions to take place directly between participating commercial banks once they have exchanged cash for tokenized currency at their respective central banks.
Remarkably, the project’s pilot trial conducted in 2022 demonstrated the feasibility of the concept, with about 160 transactions totaling $22 million conducted between partners and commercial banks.
If effectively implemented, mBridge has the potential to transform cross-border transactions by eliminating the need for intermediaries and correspondent banks. This could significantly reduce transaction times, with Thailand’s central bank suggesting that transfer times could be reduced from several days to just a few seconds.
Challenges and Considerations
While the mBridge project holds promise, it is not without challenges and considerations. The initiative would need to navigate regulatory concerns, ensure compliance with international laws, and address potential issues related to liquidity and interoperability between different digital currencies.
Some American and European officials are raising concerns about the project’s implications. They are concerned that mBridge, a digital alternative to dollar-based settlement systems, could be used to avoid sanctions, taxes, and money laundering restrictions.
Additionally, there are also concerns that fragmenting global payments into competing systems could aggravate geopolitical tensions. The development of mBridge has also led to discussions about its control and supervision by international organizations, such as the International Monetary Fund (IMF), to ensure it doesn’t become a geopolitical tool.
As discussions and trials continue, it remains to be seen how mBridge will evolve and whether it will successfully challenge the USD’s stronghold. The efforts of central banks and financial institutions in China, Thailand, Hong Kong, and the UAE underscore the potential of blockchain technology to pave the way for a more efficient and decentralized future of international finance.
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