A joint report “Project mBridge: connecting economies through CBDC“ was published in October 2022 to introduce Project mBridge by the BIS Innovation Hub Hong Kong Centre, the Hong Kong Monetary Authority, the Bank of Thailand, the Digital Currency Institute of the People's Bank of China and the Central Bank of the United Arab Emirates.

In the following paragraphs, I will provide a concise summary of the key findings and insights highlighted in the report. This summary is intended to give you a high-level overview of the report's main points, allowing you to quickly understand the core information without having to review the entire document. Please let me know if you have any specific questions or require additional details as we proceed.

Why do we need a mBridge?

Project mBridge is an ambitious initiative that explores the use of central bank digital currencies (CBDCs) for cross-border payments. Conducted by the Bank for International Settlements (BIS) Innovation Hub, in collaboration with the central banks of Hong Kong, Mainland China, Thailand, and the United Arab Emirates, this project aims to create an efficient, low-cost, and common multi-CBDC platform to facilitate international trade and cross-border business.

The current state of cross-border payments is plagued by inefficiency, high costs, and slow settlement times. Project mBridge seeks to address these challenges by leveraging distributed ledger technology (DLT) to build a dedicated blockchain platform - the mBridge ledger. This platform enables multiple central banks

• improving solutions for the key pain points of international payments

• advancing cross-border settlement in central bank money

• supporting the use of local currencies in international transactions

• creating opportunity for new and innovative payment products and services.

To test the feasibility of this concept, the project conducted a real-value pilot over six weeks from August to September 2022. Twenty commercial banks from Hong Kong, Mainland China, the UAE, and Thailand participated, conducting payment and foreign exchange (FX) payment versus payment (PvP) transactions on behalf of their corporate clients using the CBDCs issued by their respective central banks.

How was done by the new mBridge?

The pilot was a success, with over $12 million issued on the platform and more than 160 payment and FX PvP transactions totaling more than $22 million in value by 20 of the region’s largest commercial banks participated. This represents a significant step forward in multi-CBDC experimentation, as real value was settled directly on the platform for corporate customers.

How technical the mBridge is?

The technical design of the mBridge platform is a key aspect of the project. The network topology is based on a permissioned DLT network, with a custom-designed mBridge ledger (mBL) serving as the specialized and flexible platform for multi-currency cross-border payments. Particular attention was paid to modular functionality, scalability, and compliance with jurisdiction-specific policy, legal, and regulatory requirements.

The platform's functional architecture includes features such as account management, payment processing, FX PvP, liquidity management, and reporting. The consensus protocol used is a variation of Byzantine Fault Tolerance (BFT), designed to ensure the platform's resilience and security. Privacy controls, including the use of pseudo-anonymous key pair signing, are also implemented to address data privacy concerns.

Is mBridge a payment gateway only?

In addition to the technical aspects, Project mBridge has also delved into the policy, legal, and regulatory considerations of a multi-CBDC, cross-border payments platform. Extending central bank money access to foreign participants and conducting transactions on a shared ledger raised questions around policy, data privacy, and governance that require further exploration.

Legal challenges were also identified, as the introduction of a new, digital form of currency and a multi-CBDC platform raised complex questions that depend on the standing rules and regulations of each participating jurisdiction. Addressing these challenges may require regulatory changes to achieve full legal certainty and clarity.

Despite these challenges, Project mBridge has demonstrated the potential of CBDCs and DLT to revolutionize cross-border payments. The pilot's success has paved the way for the project to continue its technology-build and testing, with plans to improve existing functionalities and add new features to progress towards a minimum viable product (MVP) and, eventually, a production-ready system.

One of the key strengths of Project mBridge is its collaborative approach, bringing together central banks from diverse regions to work towards a common goal. This cross-border cooperation is essential, as the success of a multi-CBDC platform ultimately depends on the willingness of central banks to adopt and integrate their respective CBDCs onto the platform.

Furthermore, the project's focus on international trade as the first business use case highlights the potential impact of such a platform on global commerce. By facilitating efficient, low-cost cross-border payments, Project mBridge could unlock new opportunities for businesses, especially in emerging markets and developing economies (EMDEs), where access to affordable cross-border payment solutions is often limited.

Will the bridge be further enhanced?

Project mBridge is a collaborative initiative aimed at developing a cross-border payment platform that can facilitate efficient and secure transactions across different jurisdictions. Building upon the lessons and progress made in the pilot and earlier phases, the project is now poised to enter a new chapter of development and expansion. Equipped with a refined understanding of the technical, regulatory, and operational challenges, the mBridge team is focused on achieving a series of key milestones in 2023 and 2024:

• achieving automated interoperability with domestic payment systems

• integrating FX price discovery and matching into the platform

• introducing liquidity management tools such as transaction queueing and priority management

• 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

• taking further inventories of policy, regulatory and compliance considerations

• evaluating decentralised deployment through a lens of data-privacy and legal considerations, and in tandem determining the remit and structure of a centralised governance role

• testing and piloting more business use cases and transaction types

• including additional jurisdictions and participants

• exploring more services that the private sector can add to the platform

Conclusion

In conclusion, Project mBridge represents a significant step forward in the evolution of cross-border payments. By leveraging CBDCs and DLT, the project has demonstrated the potential to create a more efficient, resilient, and inclusive global payment system. As the project continues to progress, it will undoubtedly provide valuable insights and learnings that can inform the development of future multi-CBDC initiatives and shape the future of cross-border payments.