Steady Growth in Currency Bridge Transactions Solving the Challenges and Pain Points of CrossBorder Payments

Bijie.com reports:
The progress of the exploration of the multilateral central bank digital currency bridge project has attracted widespread attention from the market.
“In recent months, the volume of currency bridge transactions has been steadily increasing, proving the market’s confidence in the platform,” revealed Lu Lei, Deputy Governor of the People’s Bank of China, regarding the latest progress of the project after entering the minimum viable product stage.
At the 2024 Financial Street Forum series event, the “Multilateral Central Bank Digital Currency Bridge: Central Bank Digital Currency Connecting the Global Economy” seminar, Lu Lei introduced that the currency bridge project is focusing on addressing the difficulties and pain points of cross-border payments, which has drawn the attention of many conference attendees.
What is a currency bridge? Simply put, it is a bridge built by multiple central banks using central bank digital currencies to form a cross-border payment network. Each payment transaction can be carried out orderly through the “bridge,” achieving faster, lower-cost, and more secure cross-border payments and settlements, benefiting all participating parties.
In February 2021, the multilateral central bank digital currency bridge project was launched jointly by the Innovation Center of the Bank for International Settlements (BIS) Hong Kong, the Central Bank of Thailand, the Central Bank of the United Arab Emirates, the Digital Currency Research Institute of the People’s Bank of China, and the Hong Kong Monetary Authority, aiming to explore the application of central bank digital currencies in cross-border payments.
After more than three years of development, the multilateral central bank digital currency bridge project entered the minimum viable product stage in June this year. This means that participating institutions of the currency bridge can carry out real transactions based on actual situations and in an orderly manner. At the same time, the project members have expanded further with the official inclusion of the Saudi Arabian Monetary Authority in the currency bridge.
“The demand side is the driving force behind the development of the currency bridge project,” said Zhou Xiaochuan, Vice Chairman of the Boao Forum for Asia at the seminar, indicating that the interconnection and rapid development of Asian economies have prompted the launch and gradual implementation of the multilateral central bank digital currency bridge project.
In Lu Lei’s view, during the implementation of the currency bridge project, all parties have always adhered to the three principles of “no loss,” “compliance,” and “interconnection.”
To achieve the benign evolution of the international monetary system, the most effective method is to achieve interconnection among various cross-border payment systems.
Lu Lei stated that the currency bridge can not only support the interconnection of central bank digital currency systems but also connect with traditional central bank payment systems. At the same time, the currency bridge achieves convenient synchronous settlement through central bank currencies, achieving interconnection at the currency level as well.
Currently, the multilateral central bank digital currency bridge project is focusing on exploring solutions to the difficulties and pain points of cross-border payments, and its advantages are gradually becoming apparent. For small-scale cross-border payment businesses such as cross-border e-commerce and remittances, they are often overlooked by commercial banks due to factors such as complex participants, long business chains, and high identity verification costs.
“The currency bridge should consider these businesses that are closer to people’s livelihoods, solve market pain points, and complement the international monetary and trade systems,” said Lu Lei.
In order to solve the problems of low efficiency and high costs in cross-border payments, the currency bridge is actively exploring. According to statistics released by the Bank for International Settlements, the currency bridge platform can process a payment transaction in 6 to 9 seconds, while cross-border transactions processed through correspondent banks currently have a delay of 2 to 5 days between payment and settlement. At the same time, using the currency bridge for cross-border payment transactions can save nearly half of the costs.
Currently, the currency bridge project has entered a new stage and is also facing new challenges such as data storage and network stability. How to further improve the performance of the currency bridge system?
At the seminar, Mu Changchun, Director of the Digital Currency Research Institute of the People’s Bank of China, introduced three plans:
First, strengthen privacy protection design. The plan is to launch relevant privacy protection technologies in 2025, proving the compliance and adequacy of funds between the two parties to the transaction without disclosing details such as account balances and transaction timestamps, ensuring the efficiency of the entire system’s operation.
Second, improve the development and operation system of the system. The currency bridge system is deployed in a decentralized manner, with each party operating independently. However, as the currency bridge system is a cross-border financial market infrastructure that operates on a regular basis, there is a need for an efficient development and operation mechanism to ensure the continuity of system operations.
Third, enhance the openness and transparency of the currency bridge platform. The plan is to use the development and operation system to promote joint development, code delivery, and other activities. (Reporters Wu Yu and Ren Jun)