To be sure, mBridge has had a geopolitical cloud hanging over it because it is led by China and aims to establish direct links between the central banks of its participants, allowing money to be sent outside of the existing correspondent banking system. There have always been concerns that the project’s ultimate goal was to develop an alternative payments rail that could circumvent the U.S.-dominated international financial system.
The catalyst for BIS’s exit from mBridge appears to have been – at least in part – the public proposal of Russian President Vladimir Putin to create a BRICS Bridge for the group. The technology of BRICS Bridge would be similar to mBridge’s. The objective would be to make the participants’ economies independent of the U.S.-dominated global financial system, Putin said.
Following Putin’s comments, BIS general manager Agustin Carstens said in Washington during a meeting of the Group of 30 that “we cannot directly support any project for the BRICS because we cannot operate with countries that are subject to sanctions — I want to be very clear about that.”
We expect that China will continue to move forward with mBridge despite the departure of BIS. It is eager to find more applications for cross-border usage of the digital yuan and the project includes the United Arab Emirates (UAE) and Saudi Arabia, two of its most important trading partners in the Middle East. Additionally, the MVP platform can undertake real-value transactions (subject to jurisdictional preparedness) and is compatible with the Ethereum Virtual Machine (EVM), a decentralized virtual environment that executes code consistently and securely across all Ethereum nodes. MVP thus is suitable as a testbed for new use cases and interoperability with other platforms.
That said, mBridge’s ability to attract new members in the West and among U.S. allies could be adversely affected by the exit of BIS. The project currently has both the International Monetary Fund and World Bank as observers, as well as the New York Innovation Center, Federal Reserve Bank of New York, Bank of France, Bank of Italy, European Central Bank, Central Bank of Norway, Bank of Israel, Bank of Korea and Reserve Bank of Australia. It will be interesting to see how they proceed without BIS involved in the project.
We will be watching closely in the coming months to see if and how mBridge grows. Involving sanctioned countries in the initiative would almost certainly escalate tensions with the U.S. – especially under the new administration – and thus remains unlikely.