A man wearing a mask passes in front of the headquarters of the People’s Bank of China, the central bank, in Beijing, China, while the country is affected by an outbreak of the new coronavirus, on February 3, 2020.
Jason Lee | Reuters
GUANGZHOU, China – Central banks in China, Thailand, the United Arab Emirates and Hong Kong are jointly exploring a cross-border digital currency payment project.
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 Digital Currency Research Institute of the People’s Bank of China (PBOC) and the Central Bank of the United Arab Emirates.
Central banks ’digital currencies have gained strength with monetary authorities around the world. They are widely associated with central banks trying to digitize their fiat currency.
Precisely, the technologies used differ from one institution to another.
But the group of central banks led by HKMA and BOT is exploring so-called distributed book technology (DLT). It refers to databases that are replicated and shared between the entities involved and record transactions. They are not necessarily owned by a single central bank, but are a shared book of activities. DLT is seen as a way to potentially help make cross-border payments more efficient.
The project will explore ways to use DLT to “facilitate cross-border real-time foreign exchange payment-to-payment transactions,” the Hong Kong central bank said.
Payment against payment is a settlement mechanism that ensures that “the final transfer of a payment in one currency occurs and only if the final transfer of a payment in another currency or in other currencies occurs,” according to the Bank. of International Settlements a group of central banks.
Cross-border payments are traditionally slow and expensive. Central banks believe that digital currencies from central banks could accelerate them.
Central banks will also explore “cases of business use in a cross-border context using domestic and foreign currencies.”
China’s approach to digital currencies
Although several central banks are exploring digital currencies, it is the central bank of China that is later, at least with a national version.
China has been testing what it calls the electronic payment system of digital currency, a digital form of yuan that currently focuses on domestic payments.
In recent months, China has distributed large sums of its digital yuan by lottery to citizens of some cities, such as Shenzhen and Chengdu.
But the PBOC has been very secretive about its efforts with digital currencies. Some commentators have suggested that a digital yuan could help internationalize the Chinese currency. And the cross-border project with the central banks of Hong Kong, Thailand and the United Arab Emirates could be proof of that intention.
“The evidence is that the PBOC is still focused on domestic payments. But this kind of renminbi internationalization is the long-term strategic goal,” said Linghao Bao, an analyst at Trivium China.