A man wearing a mask walks past the headquarters of the People’s Bank of China, the central bank, in Beijing, China, as the country is hit by an outbreak of the new coronavirus, February 3, 2020.
GUANGZHOU, China — Central banks from China, Thailand, United Arab Emirates and Hong Kong are exploring a digital currency cross-border payment project together. The Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BOT) worked together to study the application of central bank digital currencies (CBDC) last year. They are now expanding their work to include the People’s Bank of China’s (PBOC) digital currency research institute and the Central Bank of the United Arab Emirates. Central bank digital currencies have been gaining steam with monetary authorities around the world. They broadly relate to central banks attempting to digitalize their fiat currency.
But the group of central banks led by HKMA and BOT are exploring so-called distributed ledger technology (DLT). This refers to databases that are replicated and shared among the entities involved and record transactions. They’re not necessarily owned by a single central bank but are a shared ledger of activity. DLT is seen as a way to potentially help make cross-border payments more efficient. The project will explore ways using DLT to “facilitate real-time cross-border foreign exchange payment-versus-payment transactions,” said Hong Kong’s central bank. Payment-versus-payment is a settlement mechanism to ensure “that the final transfer of a payment in one currency occurs if and only if the final transfer of a payment in another currency or currencies takes place,” according to the Bank for International Settlements, a group of central banks. Cross-border payments are traditionally slow and expensive. Central banks believe that central bank digital currencies could speed them up. The central banks will also explore “business use cases in a cross-border context using both domestic and foreign currencies.”
China’s focus on digital currencies
While a number of central banks are exploring digital currencies, it is China’s central bank that is furthest ahead, at least with a domestic version. China has been doing trials of what it calls the Digital Currency Electronic Payment system — a digital form of yuan that’s currently focused on domestic payments. Over the last few months, China has been handing out large sums of its digital yuan through lottery to citizens in some cities, such as Shenzhen and Chengdu. But the PBOC has been very secretive about its efforts with digital currencies. Some commentators have suggested a digital yuan could help internationalize China’s currency. And the cross-border project with the central banks of Hong Kong, Thailand and the UAE could be evidence of that intention. “The evidence is the PBOC is still focused on domestic payments. But this sort of internationalization of the renminbi is the long-term strategic goal,” Linghao Bao, analyst at Trivium China, said.