The ostensible purpose of mBridge, at least what comes across from perusing the new BIS document, is to improve speed, efficiency, transparency and so on in cross-border payments. The document argues that traditional correspondent banking is often slow, expensive and complex. At the same time, it says that there is evidence that correspondent banking services are being reduced, which could mean financial exclusion for some.
MBridge aims to solve these problems with its purpose-developed permissioned distributed ledger technology (DLT) called the mBridge ledger, or mBL, that supports instant peer-to-peer and atomic cross-border payments and FX transactions using wholesale CBDCs.
We have to wonder though, how superior is this technology to what we already have in cross-border payments? After all, SWIFT gpi allows member banks transacting within networks to have near-real-time settlement and payment tracking. In addition to SWIFT, Ripple already has a blockchain-based cross-border payments rail, while Visa and Mastercard each have introduced real-time payment capabilities on their respective networks. Is it preferable to build an entirely new payments infrastructure – one which involves central banks having to issue digital fiat currencies – just to increase settlement time moderately?
In addition, the prominent role of China in mBridge means that there is a geopolitical dimension to the project to consider. The August Bloomberg article emphasizes that mBridge is focused on “sending money around the world without relying on U.S. banks,” adding that “it is advancing so quickly that some European and American observers now view it as an emerging challenger to dollar-denominated payments in global finance.”
It would be instructive to keep in mind that the internationalization of the renminbi has not played out as many pundits predicted in the early 2010s. Because China has opted to continue controlling the renminbi’s exchange rate and strictly controlling capital flows, the Chinese currency has not become a major global reserve currency, and even its share of trade settlement is not close to challenging the dollar. Renminbi-denominated trade settlement not involving China remains scant, unlike dollar-denominated settlement not involving the U.S.
Looking ahead, it will be important for mBridge to maintain – to the best of the participants’ abilities – geopolitical neutrality so that it does not become seen as a vehicle to disrupt existing cross-border payment flows. Otherwise, the project could face opposition from certain countries that would be detrimental to its future prospects. The participants at this point should focus on demonstrating that the initiative has unique benefits that could be shared globally.