One of the world’s most influential Islamic financial jurisdictions has joined an international central bank digital currency project underscoring its intention to have skin in the game of virtual currencies.
The Central Bank of the UAE (CBUAE) and the Digital Currency Institute of the People’s Bank of China are now part of Project Inthanon–LionRock, an initiative by the Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BOT) with the support of the Bank for International Settlements Innovation Hub Centre to study the application of a central bank digital currency to facilitate cross-border payments. The CBUAE and HKMA have signed an MoU for this purpose.
Now rebranded as m-CBDC Bridge, the first phase of the project — a culmination of a 2019 MoU between HKMA and BOT — saw the development of a cross-border network prototype allowing participating banks in Hong Kong and Thailand to execute fund transfers and foreign exchange transactions on a peer-to-peer basis, reducing settlement layers. Utilizing smart contracts, the cross-border fund transfer process was enhanced to a real-time and atomic payment-versus-payment manner. This was completed in December 2019 and a blockchain proof-of-concept (PoC) prototype was engineered together with 10 participating banks from both countries.
Fast forward a little over a year, in its new iteration, the m-CBDC Bridge project will build upon what it learned from Project Inthanon–LionRock and expand its geographical scope. It will further explore the capabilities of distributed ledger technology (DLT) by developing a PoC prototype to facilitate real-time international foreign exchange payment-versus-payment transactions in a multi-jurisdictional context and on a 24/7 basis.
It is also confirmed that the m-CBDC Bridge project will study the potential of business use cases in a cross-border context using both domestic and foreign currencies.
“Eventually, the outcome is expected to alleviate the pain points in cross-border fund transfers, such as inefficiencies, high cost and complex regulatory compliance. Most importantly, the participating central banks will take into account the results of the PoC work to evaluate the feasibility of the m-CBDC Bridge project for cross-border fund transfers, international trade settlement and capital market transactions,” the entities said in a joint statement.
“The HKMA has been making considerable efforts to expand our international fintech network to include counterparts in the Middle East, and CBUAE is naturally a valuable partner of our network. We anticipate that a lot of synergies will arise from the strengthened collaboration under the MoU, and look forward to the CBUAE’s joining of our CBDC project to enrich and bring in new thoughts and perspectives for the project,” noted Eddie Yue, CEO of HKMA. Joining this initiative follows on the heels of the completion of a years-long pioneering cryptocurrency regional project in December 2020. Involving both the CBUAE and the Saudi Central Bank, Project Aber developed a PoC to support other central banks in building a cross-border payment ecosystem powered by DLT. Project Aber, which confirmed that a dual-issued central bank digital currency is technically possible, involved six commercial banks from both the Gulf nations, half of which were Islamic: Al Rajhi Bank, Alinma Bank and Dubai Islamic Bank as well as conventional lenders Riyad Bank, First Abu Dhabi Bank and Emirates NBD.