Settle cross-border payments directly between central banks
Sector: Tertiary sector · Industry: Banking and financial services · Organisation: Bank for International Settlements (BIS Innovation Hub) · Maturity level: Pilot
The Bank for International Settlements built the mBridge platform together with the Hong Kong Monetary Authority, the Digital Currency Institute of the People's Bank of China, the Bank of Thailand and the Central Bank of the UAE. Several central banks issue their respective central bank digital currency on a shared ledger, allowing commercial banks to settle payments and foreign exchange transactions directly and in real time. The project reached minimum viable product stage in June 2024, and the BIS exited on 31 October 2024.
Documentation status
- Project status: Pilot (as of 31 October 2024) — After reaching the MVP stage in June 2024, the BIS withdrew on 31 October 2024; since then, the platform has been maintained by the participating central banks themselves.
- Evidence: Evidence medium
- Editorial review: pending
Description
The Bank for International Settlements, together with several Asian and Arab central banks, has built the mBridge platform, on which digital central bank currencies of several countries are issued in parallel. Cross-border payments otherwise run via correspondent banking chains, resulting in high costs, delays of days, and low transparency regarding status and fees. On the shared ledger, commercial banks hold the digital central bank currency directly and settle payments and foreign exchange transactions immediately with each other.
The project began in 2021 from collaboration between the BIS Innovation Hub, the Bank of Thailand, the Central Bank of the United Arab Emirates, the Digital Currency Institute of the People's Bank of China, and the Hong Kong Monetary Authority; the Saudi central bank joined in 2024. The technical basis is the specially developed mBridge Ledger, on which each participating central bank issues its own digital central bank currency. A pilot with transactions in real value was conducted in 2022, where commercial banks settled payments without correspondent banking chains. In June 2024, the BIS announced that the platform had reached the Minimum Viable Product stage and invited further international participants to join. On 31 October 2024, the BIS formally withdrew from the project, with General Manager Agustín Carstens describing this as a conclusion rather than a retreat, as the platform is mature enough to be maintained by the participating central banks themselves. Thus, mBridge is the most extensive practical attempt so far to process international payments in the connected corridors without correspondent banks.
Perspectives
B2B — organisations perspective
For internationally active companies and their house banks, mBridge shows how payment processing times and fees in certain corridors could fundamentally change if central bank money is moved directly between commercial banks. Treasury departments with business in Asia and the Gulf region should monitor developments, as this shifts liquidity planning and foreign exchange hedging.
B2C — consumers perspective
For private individuals, the platform has at most an indirect effect, for example when international transfers in the connected corridors become cheaper and faster. Direct access for end customers is not described in the reviewed sources.
Employees perspective
In payments and trade finance, work shifts from tracking status across multiple intermediary banks to managing direct settlement. Compliance and supervisory functions must additionally assess how audit obligations are fulfilled on a ledger maintained by multiple states.
Benefits
General
- Payments and foreign exchange transactions are settled in real time between commercial banks of different countries.
- The correspondent banking chain is completely eliminated in the connected corridors.
- Liquidity tied up in Nostro accounts decreases.
- The MVP stage was reached with transactions in real value, not just in test mode.
B2B — organisations
- Shorter processing times and lower costs for payments in the connected corridors.
- Better planning of liquidity and foreign exchange hedging in international business.
B2C — consumers
- Indirectly cheaper and faster international transfers in the connected corridors.
Employees
- Less effort for status tracking across multiple intermediary banks.
- New areas of expertise around digital central bank currencies.
Challenges
General
- Several sovereign central banks must permanently agree on common governance rules.
- Legal recognition of the digital central bank currency must be given in each jurisdiction.
- After the BIS withdrawal, responsibility lies solely with the participating central banks.
B2B — organisations
- The benefits are limited to the actually connected corridors.
Employees
- Compliance functions must newly map audit obligations on a multi-state maintained ledger.
Technology foundation
mBridge runs on the specially developed mBridge Ledger, a distributed ledger technology on which several central banks simultaneously issue their respective digital central bank currencies. A shared register is the prerequisite here for commercial banks from different countries to settle payments directly with each other, without a correspondent banking chain or a single national infrastructure in between.
Implementation examples
mBridge Multi-CBDC platform for cross-border settlement
Cross-border payments run through correspondent banking chains with high costs, durations of days, limited transparency regarding status and fees, as well as significant liquidity tied up in nostro accounts.
The BIS Innovation Hub built a platform together with four central banks on which several digital central bank currencies are issued in parallel. Commercial banks settle payments and foreign exchange transactions directly with each other via this platform.
The collaboration began in 2021 with the Bank of Thailand, the Central Bank of the United Arab Emirates, the Digital Currency Institute of the People's Bank of China and the Hong Kong Monetary Authority; in 2024 the Saudi central bank joined. In 2022, a pilot with transactions of real value was conducted; in June 2024, the BIS announced reaching the MVP stage and invited further participants. On 31 October 2024, the BIS withdrew from the project; since then, the platform has been maintained by the participating central banks themselves.
Costs and duration of the correspondent banking chain, lack of transparency about payment status, as well as coordination of several sovereign central banks over a jointly operated infrastructure.
Tags
Digital central bank currency, Cross-border payments, Foreign exchange settlement, Central bank, Distributed ledger