Only a few weeks ago, the president of the Bank for International Settlements (BIC), of which the world’s major central banks are majority shareholders, Benoit Coeuré warned that CBDC projects should be accelerated to counter the growing spread of CBDCs.
BIS’s announcement on the new CBDC of central banks
Perhaps disappointed by the lack of response to their warning, they decided to set a good example. The BIS announced the start of a test of a prototype digital state currency with the central banks of Hong Kong, China, the United Arab Emirates and Thailand.
This would be a further development of the multiple Central Bank Digital Currency (mBridge) created in April by the BIS.
Benedict Nolens, head of the BSI innovation lab in Hong Kong, explained two days ago that it is a project aimed at improving the efficiency of cross-border transfers.
“Enabling faster and cheaper cross-border wholesale payments, including to jurisdictions that don’t benefit from a vibrant correspondent banking system, would be positive for trade and economic development”.
According to the report published by the BSI, this multi-central bank currency experiment could offer benefits to participating central banks.
It would also bring greater capacity to manage the liquidity of their CBDCs, monitor their flows and balances, improve the level of transaction privacy and make cross-border transfers cheaper.
Similar project launched in early September
This is not the first time that several central banks have agreed to implement joint CBDC platform projects.
In early September the central banks of Australia, South Africa, Singapore and Malaysia, in collaboration with the BIS Innovation lab, launched a similar test, the Dunbar project. This project, led by the BIS centre in Singapore, aims to develop prototype shared platforms for cross-border transactions using multiple CBDCs. These should enable digital currency transfers between countries without any need for intermediaries, thus reducing the time and cost of transfers.
The first results of the experiments would be very encouraging in terms of cost, as using this platform would reduce cross-border transaction costs by 50%.
Chairman of the HKMA, Hong Kong’s central bank, Howard Lee, was enthusiastic about the new mBridge project, which could put Hong Kong at the centre of digital finance, saying:
“Hong Kong’s robust and advanced financial infrastructure has been the cornerstone of the city’s success as an international financial centre. 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”.
Digital state currencies a weapon to regulate and curb crypto?
According to some observers, these increasingly advanced CBDC projects would be the real weapon in the hands of traditional financial institutions to control, limit and regulate the spread of cryptocurrencies.
This is what the chairman of the BIS openly said a few days ago.
China’s own ban on cryptocurrencies has been seen by many experts as an attempt to prepare in style for the launch of its own digital yuan, without having to worry about traditional cryptocurrencies that might hinder the state project.
The new state-owned digital currencies, which would not be like Bitcoin but like stablecoins, could be the state’s response to an innovation that seriously risks undermining the traditional financial system in the coming years.