The Bank for International Settlements (BIS) has released the full details of its mBridge pilot project to use central bank digital currencies (CBDCs) for foreign exchange. Commercial banks in four jurisdictions made cross-border transfers using CBDCs and distributed ledger (blockchain) technology in the project, which was heralded as a success.
Twenty commercial banks in Hong Kong, China, the United Arab Emirates and Thailand used the custom-made mBridge Ledger platform and CBDCs issued by their respective central banks to conduct payment and foreign exchange payment-versus-payment transactions on behalf of their corporate clients between Aug. 15 and Sept. 23. Over $12 million was issued on the platform, facilitating over 160 transactions worth more than $22 million in value.
The mBridge Ledger platform used single-platform, direct-access infrastructure to make real-time, peer-to-peer transactions with the HotStuff+ consensus mechanism. The Dashing dynamic-threshold consensus protocol is also being tested.
The project brought to light a number of policy challenges. According to the authors of the project paper, the legal categorization of a CBDC is the most pressing issue. They wrote:
“The typical question is whether CBDC on the platform would be classed as currency, a representation of funds on account with the central bank, a debt or something else.”
The new technology raised even more fundamental issues than that, with the authors continuing:
“Extending access to central bank money directly to foreign participants and conducting transactions on a shared ledger requires further exploration of policy, data privacy and governance considerations.”
Practical matters that will be addressed in 2023 and 2024 include integrating liquidity management and FX price discovery.