The Digital Currency Institute, the People’s Bank of China’s digital currency wing, and the central bank of the United Arab Emirates have joined other Asian monetary regulators in a central bank digital currency project that focuses on cross-border payments.

The project named multiple CBDC bridge was initiated by the Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BoT) and was later joined by the BIS Innovation Hub Centre (BISIH).

The consortium is developing a proof-of-concept (PoC) prototype exploring the capabilities of the distributed ledger technologies (DLT) in real-time cross-border foreign exchange payment-versus-payment transactions. The regulators want the system to work around the clock across multiple jurisdictions.

Additionally, the announcement detailed that the participants will analyze business uses within a cross-border context with both domestic and foreign currencies.

Digital Yuan for Settlement?

Among all the participants in the central bank consortium, the Chinese monetary regulator is the only one piloting its digital currency. 

Though Tuesday’s press release did not mention anything of the role of digital yuan in building the cross-border payments system, the Hong Kong regulator was already in talks with the People’s Bank of China to test the CBDC in cross-border payments.

Digital currency has massive potential in changing the current shortcomings of the cross-border payment system, and many central banks are stressing this advantage. The consortium highlighted that the project can improve the inefficiencies, high cost and complex regulatory compliance in cross-border payments.

Furthermore, along with the monetary regulators, many private players are working in the cross-border payments arena. San Francisco-based Ripple has partnered with hundreds of banks and financial institutions around the world to build a massive network for cross-border payments using its infrastructure.