A man wearing a mask passes by 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 – The central banks of China, Thailand, the United Arab Emirates and Hong Kong are jointly exploring an international 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 People’s Bank of China (PBOC) digital currency research institute and the Central Bank of the United Arab Emirates.
The central bank’s digital currencies have been gaining momentum with monetary authorities around the world. They relate largely to attempts by central banks to digitize their fiat currency.
Precisely what technologies are being used differs from institution to institution.
But the group of central banks led by HKMA and BOT is exploring so-called distributed reason technology (DLT). 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 ledger 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 payment transactions against payment in foreign currency in real time,” said the Hong Kong central bank.
Payment against 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 occurs”, according to the Bank for International Settlements, a group of central banks.
International payments are traditionally slow and expensive. Central banks believe their digital currencies can accelerate them.
Central banks will also explore “business use cases in an international context using national and foreign currencies”.
China’s focus on digital currencies
While several central banks are exploring digital currencies, it is China’s central bank that is ahead, at least with a domestic version.
China has been testing what it calls a digital currency electronic payment system – a digital form of yuan that currently focuses on domestic payments.
In recent months, China has distributed large sums of its digital yuan via lottery to citizens in some cities, such as Shenzhen and Chengdu.
But the PBOC has been keeping its digital currency efforts a secret. Some commentators have suggested that a digital yuan could help internationalize the Chinese currency. And the cross-border project with central banks in Hong Kong, Thailand and the United Arab Emirates can be proof of that intention.
“The evidence is that PBOC is still focused on domestic payments. But that kind of internationalization of the renminbi is the long-term strategic objective,” said Linghao Bao, an analyst at Trivium China.