July 2, 2022
  • July 2, 2022

What do you want to know?

By on April 29, 2021 0

Central banks in China, Hong Kong, Thailand and the United Arab Emirates have also joined forces to create their own digital currency initiative.

The global crypto market is a large and lucrative space, which has a total market capitalization value of $ 2.22 billion.

As Bitcoin (BTC) continues to dominate this space and accounts for over 50% of total market capitalization, new crypto assets are developed every year, creating a more diverse industry that fosters widespread adoption across the globe.

Interestingly, the central banks of China, Hong Kong, Thailand and the United Arab Emirates have also joined forces to create their own digital currency initiative. But what exactly is this initiative and what will be its impact on cross-border payments in the Asia-Pacific region?

What form does the new initiative take?

Simply put, this collaborative initiative aims to leverage blockchain for transparent and low-cost cross-border payments, especially those related to international trade.

Known colloquially as the Multiple Central Bank Currency Bridge (or m-CBDC Bridge), the project was designed by the Basel-based Bank for International Settlements (BIS), with additional input from the Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BoT).

The initiative will require participating central banks to deploy distributed ledger blockchain technology to create a proof of concept prototype, which will reduce currency payments and create higher levels of efficiency.

This will certainly have a direct impact on forex market, especially in terms of minimizing transaction costs and creating an improved infrastructure for payments from one currency to another.

Interestingly, China remains at the heart of the m-CBDC initiative, which is why the new payment system is often referred to by some as the “digital yuan”.

Some have argued that this presents a direct challenge for the Society for Worldwide Interbank Financial Telecommunication (Swift), which currently runs the bulk of currency transactions. After all, critics have suggested that Swift has increasingly become a de facto vehicle for U.S. and European sanctions at a time of heightened tensions with Beijing, prompting dramatic, tech-driven action.

What does this mean for traditional payment systems?

Of course, it can be argued that the new initiative threatens traditional retail payment systems, especially the two market leaders AliPay and WeChat Pay.

Together, these e-payment giants make up 98% of China’s vast mobile payments market, having evolved to dominate the retail space and drive the growth of e-commerce at all levels.

However, it is believed that the CBDC’s digital currency was actually designed as a viable backup for these systems, creating a scenario in which each option will coexist and provide much greater flexibility to businesses, customers and investors.

This is good news for the Asia-Pacific economy as a whole, which increasingly depends on electronic payment services for the vast majority of its revenue. Don’t make mistakes; If AliPay or We Chat Pay were to experience significant financial or technological issues, it would have an extremely negative impact on China’s financial stability and the ability of companies to do business.

So while China may be concerned about the reported manipulation of Swift by U.S. and European authorities, it also designed its CBDC initiative as a way to support the domestic economy.

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A graduate in Intercultural Communication, Julia continued her studies by following a Masters in Economics and Management. Become captured by innovative technologies, Julia became passionate about exploring emerging technologies believing in their ability to transform all spheres of our life.