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Asia to step up CBDC development and testing in 2024

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Central banks in Asia are stepping up CBDC development, from testing cross-border payments to expanding applications in traditional finance, marking a major step forward in the field of digital currencies.

CBDC is being piloted continuously in Asia

Central banks in Asia are focusing on developing central bank digital currencies (CBDCs), with many trials being rolled out to create an alternative to cash in the future.

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mBridge is currently available in several countries such as China and Hong Kong. Source: Ledger Insights

According to Angela Ang, a senior policy adviser at TRM Labs and a former manager at the Monetary Authority of Singapore (MAS), the testing of CBDC projects remains a regular occurrence in Asia, with much investment in pilot projects.

A significant milestone is that the mBridge project, one of the first cross-border CBDC projects, reached complete test status (MVP) in June 2024. This means that the platform has enough features to be tested by the initial user.

The mBridge project, initiated by the Bank for International Settlements (BIS), the Hong Kong Monetary Authority (HKMA), and the central banks of China, Thailand and the UAE, aims to test a common multi-CBDC platform for wholesale cross-border payments.

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The mBridge technology will allow countries to integrate CBDCs deep into banking technology. Source: Regulation Asia

The BIS said mBridge's MVP platform can perform real-value transactions and is compatible with Ethereum virtual machines (EVMs). This allows mBridge to become a testing ground for additional technology solutions, new use cases, and interoperability with other platforms.

However, the BIS also acknowledged that the project needs many more years to reach full completion.

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CBDCs will be fully controlled by government entities. Source: DSCVR

In August, the Hong Kong Monetary Authority (HKMA) implemented a sandbox environment for Ensemble, a wholesale CBDC project. This is part of an effort to test the traditional financial industry tokenization. The HKMA said the sandbox would focus on four key areas: bonds and investment funds, liquidity management, green and sustainable finance, and trade finance and supply chain.

The Ensemble project, established by the HKMA in March 2024, is in the second phase of the e-HKD experiment to study the programming, tokenization and atomic payment capabilities of CBDCs in this experimental environment.

 

The challenge of e-CNY in China

E-CNY, China's CBDC, although it has achieved some success, still has difficulty in widespread adoption due to competing with popular cashless payment methods such as Alipay and WeChat Pay. However, the Chinese authorities have expanded the tests to promote the use of e-CNY.

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Trading volume of CBDC e-CNY coins in China in 2023. Source: Ledger Insights

In May, HKMA and the People's Bank of China (PBOC) expanded the e-CNY trial in Hong Kong by linking the system to Hong Kong's Fast Payment System (FPS), which allows users to deposit money into e-CNY wallets at any time without needing a bank account in mainland China.

As of the end of June 2024, the total transaction value of e-CNY has reached 7,000 billion yuan (US$966.7 billion) since the start of testing in late 2019. In June, HSBC's branch in China also became the first foreign bank to offer e-CNY services to both retail and corporate customers.

The testing and development of CBDCs in Asia is going strong, although there are many challenges to overcome before CBDC is widely adopted in the region.