A man with a mask walks past the headquarters of the People’s Bank of China, the central bank, in Beijing, China, while the country is hit by an outbreak of the new coronavirus on February 3, 2020.
Jason Lee | Reuters
GUANGZHOU, China – Central banks of China, Thailand, the United Arab Emirates and Hong Kong are jointly investigating a digital currency cross-border payment project.
The Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BOT) worked together last year to study the application of central bank (CBDC) digital currencies.
They are now expanding their work to include the People’s Bank of China (PBOC) digital currency research institute and the Central Bank of the United Arab Emirates.
Central bank’s digital currencies have received steam from monetary authorities around the world. They are mainly related to central banks trying to digitize their fiat currency.
Exactly what technologies are used differs from institution to institution.
But the group of central banks led by HKMA and BOT are investigating so-called distributed ledger technology (DLT). It refers to databases that are replicated and shared among the relevant entities and record transactions. It is not necessarily owned by one central bank, but is a shared ledger for activities. DLT is seen as a way to potentially help make cross-border payments more efficient.
The central bank in Hong Kong says the project will explore ways using DLT to facilitate ‘cross-border foreign exchange payment-for-payment transactions.
Payment versus payment is a settlement mechanism to ensure ‘that the final transfer of a payment in one currency takes place if and only if the final transfer of a payment takes place in another currency or currencies’, according to the Bank for International Settlements , a group of central banks.
Cross-border payments are traditionally slow and expensive. Central banks believe that the digital currencies of the central bank can speed them up.
The central banks will also ‘investigate cases of business use in a cross-border context using local and foreign currencies’.
China’s focus on digital currencies
While a number of central banks are examining digital currencies, it is China’s central bank that is farthest ahead, at least with a local version.
China has conducted trials of what it calls the Digital Currency Electronic Payment System – a digital form of yuan that is currently focused on local payments.
Over the last few months, China has distributed large sums of its digital yuan through lotteries to citizens in some cities, such as Shenzhen and Chengdu.
But the PBOC was very secretive about its efforts with digital currencies. Some commentators have suggested that 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 proof of intent.
“The evidence is that the PBOC is still focused on domestic payments. But this kind of internationalization of the renminbi is the long-term strategic goal,” said Linghao Bao, analyst at Trivium China.