Hong Kong Monetary Authority Announces The mBridge Project’s Success And Important Conclusions

On October 26, the Hong Kong Monetary Authority (HKMA) released a report detailing the accomplishments and major conclusions of its mBridge central bank digital currency (CBDC) project.

The paper, “Project mBridge: Connecting Economies through CBDC,” was written by the Central Bank of the United Arab Emirates, the Bank of Thailand, the People’s Bank of China, and the Hong Kong Center of the Bank of International Settlements Innovation Hub (BISIH), among others.

The mBridge cross-border CBDC trial will run from August 15 through September 23, 2022. Over 160 payment and foreign currency transactions worth $22 million in total value are carried out by the authors of the research and 20 commercial banks in the four jurisdictions.

The study asserts that it will innovate the CBDC platform to move toward a minimal viable product and, ultimately, a fully-fledged CBDC system. It will do this by using its insights from the project, policy, legal, and regulatory studies.

mBridge were recognized as regional and international trade

The initiative supported the development of regional FX markets in the participating nations, identifying this as the first business use case. The report asserts that it eliminates inefficiencies associated with cross-border payments, including credit and liquidity risks that could prevent settlement funds from being available in the event of illiquidity or insolvency, and a network of banks dispersed across various time zones and operating hours.

According to the paper, mBridge can also address other inefficiencies including delayed settlements and developing nations’ inability to access the global financial system.

According to the research, mBridge additionally helps regional trade, which is primarily settled in foreign currencies. It is accomplished by substituting CBDCs, which lowers the high transaction costs and dependence on trade settlement.

Key lesson 1: Limited number of FX PvP transactions

The report observed a limited number of FX payment versus payment (PvP) transactions throughout the project instead of one-way payments. It concluded that liquidity provision, management functions, and introducing FX market makers and measures to facilitate FX price discovery should be integrated into the platform.

Key lesson 2: mBridge integration with wholesale payment systems

The other finding is that mBridge can easily integrate seamlessly with domestic wholesale payment systems, saving time and enabling straight-through processing. Therefore, the report concludes that the ability of central banks to integrate their respective CBDCs, payment systems, issuance, and redemption processes into mBridge would be vital to the project’s success.

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