China Digital Currency Research Institute joins the multilateral central bank digital currency bridge research project to explore the cross-border payment application of central bank digital currency

On February 24, the official website of the People's Bank of China announced that the Hong Kong Monetary Authority, the Bank of Thailand, the Central Bank of the United Arab Emirates and the Digital Currency Research Institute of the People's Bank of China jointly launched the Multilateral Central Bank Digital Currency Bridge Research Project (m-CBDC Bridge) to explore the application of central bank digital currency in cross-border payments. The project is supported by the Hong Kong Innovation Center of the Bank for International Settlements.

It is understood that the Multilateral Central Bank Digital Currency Bridge Research Project will further study distributed ledger technology (DLT) through the development of experimental prototypes, realize round-the-clock simultaneous delivery (PvP) settlement of cross-border transactions of central bank digital currency pairs, and facilitate the exchange of domestic and foreign currencies in cross-border trade scenarios.

The People's Bank of China said that the multilateral central bank digital currency bridge research project will further build a favorable environment for more central banks in Asia and other regions to jointly study and enhance the cross-border payment capabilities of financial infrastructure to solve the problems of low efficiency, high cost and low transparency in cross-border payments. Based on the research results, the participants will evaluate the feasibility of the multilateral central bank digital currency bridge in cross-border fund transfers, international trade settlements and foreign exchange transactions.

It is worth mentioning that the public conception of applying digital RMB in the field of cross-border payments can be traced back to August 2020. At that time, the "Notice on the Implementation Plan for the Construction of China (Xiong'an New Area) Cross-border E-commerce Comprehensive Pilot Zone" issued by the General Office of the People's Government of Hebei Province proposed to encourage the use of RMB pricing and settlement in cross-border e-commerce activities and explore cross-border payments with digital currencies.

Generally speaking, there are roughly five steps in traditional cross-border RMB transactions, which are: the pilot enterprise and its overseas counterparty sign a business agreement, agreeing to use RMB for pricing and settlement; the bank reviews the payment application materials submitted by the customer and deducts the customer's RMB funds, and then sends the remittance instruction to the large-value payment system; the bank conducts cross-border clearing of RMB funds through the account opened by the Hong Kong and Macao Clearing Bank at the People's Bank of China; after receiving the remittance instruction, the Hong Kong and Macao Clearing Bank instructs the overseas participating banks to credit the beneficiary's account; finally, the bank handles international balance of payments statistical declaration in accordance with relevant regulations, and reports relevant information through the RMB cross-border payment and collection information management system.

The digital RMB is expected to change the multi-layered payment and receipt process of traditional cross-border payments, and the transaction speed will be faster. Previously, Hao Yi, a postdoctoral fellow at the School of Finance and Economics of Renmin University of China, said in an interview with a reporter from 21st Century Business Herald that "the digital RMB is still in the conceptual stage in cross-border transactions, but it is likely to adopt blockchain technology. In the blockchain, the actions of all units are based on the same principle. For example, the existing remittance method from A to B may involve 10 institutions, and the remittance procedure is performed one institution at a time, but under the blockchain technology, once a remittance request is initiated, the 10 institutions on the chain can see and confirm it at the same time, which greatly speeds up the transaction speed."