In a bold move that could potentially reshape the landscape of global finance, China has unveiled its latest blockchain venture, the “mBridge” project, aimed at challenging the supremacy of the US dollar in international money flows. This initiative holds the potential to elevate China’s yuan as a viable alternative to the dollar by facilitating large corporate transactions through its digital form, marking a significant stride in China’s quest for financial sovereignty.
The mBridge project, constituting the third phase of a multi-CBDC (Central Bank Digital Currency) endeavor launched back in 2019, is swiftly progressing toward its anticipated fruition by the close of 2023. Spearheaded by an alliance comprising the BIS Innovation Hub Hong Kong Center, 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, the project’s consortium is testament to the collaborative nature of this audacious undertaking.
Eclipsing the hushed whispers of doubt, the mBridge project has already showcased its potential. A pilot trial held between August and September of 2022 saw an impressive 164 cross-border transactions amounting to a substantial $22.1 million. This staggering figure underscores the efficacy of CBDCs on the mBridge platform, illustrating a near doubling of cross-border value in comparison to conventional mechanisms.
The prevailing dominance of the US dollar in global foreign exchange transactions, estimated at a colossal $6.6 trillion by the Bank for International Settlements (BIS), cannot be dismissed. The greenback currently commands a staggering 90% share of global FX transactions, signifying the enormity of the task that the mBridge initiative has undertaken.
Yet, alongside its potential to catalyze financial evolution, concerns loom. Some experts fear that mBridge could potentially offer China a considerable head start in transforming international wholesale payments, while others caution against the potential for digital alternatives to dollar-based settlements to facilitate tax evasion, sanctions evasion, and money laundering.
To address these concerns, Ross Leckow, deputy head of the BIS and coordinator of mBridge, emphasized the project’s commitment to regulatory compliance. He asserted, “Each participant commercial bank involved in testing on the mBridge platform is obliged to comply with applicable laws and regulations, including those related to tax compliance, money laundering, and sanctions enforcement.”
The significance of mBridge’s pursuit is not lost on the global stage. Boasting 23 international observers, including representation from the US Federal Reserve, the project has ignited conversations about China’s intent to recalibrate its reliance on dollar-based settlement systems. Josh Lipsky, director of the Atlantic Council’s GeoEconomics Center, opined that this initiative pries open questions about China’s overarching ambitions in the domain of global finance.
In contrast, Eswar Prasad, the author of “The Future of Money,” maintains a more reserved outlook, asserting that the United States government remains assured of the dollar’s dominion. He contends that China’s initiatives might fall short of significantly challenging the dollar’s supremacy, relegating them to a position of relative inferiority.
In this pivotal juncture, China’s mBridge project has ignited a debate that resonates beyond financial circles. The implications of this endeavor extend into realms of diplomacy, sovereignty, and economic power, making it a force to be reckoned with as it seeks to redefine the global financial landscape.