This move could create a new path for China to boost the yuan’s use in global payments and weaken the US dollar’s position as the world’s dominant reserve currency.
The PBOC Digital Currency Institute announced that it has joined the Central Bank’s multi-digital currency bridge, a cross-border payments project.
The multiple digital currency bridge from the central bank is a cross-border payments project that the Hong Kong Monetary Authority and the Bank of Thailand launched in 2019, according to a press release.
The Central Bank of the United Arab Emirates joined the project at the same time.
The project expansion was supported by the BIS Innovation Center in Hong Kong, a unit established by Basel, Switzerland, to study key financial technologies for central banks.
Originally named Inthanon-LionRock, the new name hints at a more inclusive project open for others to join.
It is too early to know where the project might lead, but it does align with Beijing’s long-term ambition to use its sovereign digital currency to boost the use of the yuan in international payments.
While the Proof of Concept project is currently only an alliance between Beijing, Hong Kong, Bangkok and Abu Dhabi, the support from the Bank for International Settlements means it is backed by an institution owned by 63 central banks.
The deal also comes weeks after the PBOC’s Digital Currency Institute created a joint venture with SWIFT, the dominant network that facilitates international payments between banks.
And according to For the press release Issued by BIS, the project aims to use the capabilities of distributed ledger technologies to support real-time cross-border foreign exchange transactions in multiple jurisdictions around the clock.
The project aims to foster an enabling environment for more central banks in Asia as well as other regions to study distributed ledger technology, solve weaknesses, assist in cross-border money transfers and settle international trade and capital market transactions.
The most popular distributed ledger technology today is blockchain, the technology that makes Bitcoins possible, but PBOC has not specified the role that, if any, blockchain might play in the digital currency electronic payment project.
And the PBOC recently accelerated its digital currency programs, with trials in Shenzhen, Suzhou and Beijing.
Many other central banks are still in the early stages of studying central bank digital currencies and their potential impact on financial systems.
A BIS survey published in January showed that central banks that represent a fifth of the world’s population are likely to launch retail digital currencies in the next three years.
One of the main benefits of using the digital system is that payments and transfers happen in real time, said the former governor of the Chinese central bank and the main figure behind the Chinese digital currency plan.
China has not set an official timeline for launching its digital currency, but it is expected to spread it more widely before the 2022 Winter Olympics in Beijing.