Project mBridge & xRapid

Project mBridge, an evolution of the Inthanon-Lionrock initiative, are collaborative efforts involving multiple central banks and the Bank of International Settlements (BIS) to develop a multi-central bank digital currency (mCBCD) platform. These projects aim to enhance cross-border payments by leveraging digital currencies and distributed ledger technology (DLT).

The blueprint is supposed to represent the foundation of the world's new financial and monetary system. Backed by programmable central bank money, the platform has been created for transactions and contracts. "New types of transactions will be possible, with the only limit being the ingenuity of public and private innovators."

Bank of International Settlements (BIS)

The Bank of International Settlements (BIS) and the central banks of China, Hong Kong, Thailand and the United Arab Emirates (UAS) have been working on a cross-border central bank digital currency project known as mBridge.

Project mBridge aims to explore a multi-central bank digital currency (CBDC) platform shared among participating central banks and commercial banks, built on distributed ledger technology (DLT) to enable instant cross-border payments and settlement. Project mBridge is the result of an extensive collaboration formed in 2021 between the BIS innovation Hub and various central banks mentioned above.

mBridge Use Case

Traditional banking is often slow, expensive and complex, thus the rationale of was to solve these problems and improve consumer experience. The project aims do this with its purpose-developed permissioned distributed ledger technology (DLT) called mBridge ledger, or mBL, that supports instant peer-to-peer and atomic cross-border payments and foreign exchange transactions using wholesale CBDC's.

A collaboration of BIS Innovation Hub, Hong Kong Monetary Authority (HKMA), Bank of Thailand, Digital Currency Institute of the People's Bank of China, and the Central Bank of the United Arab Emirates (CBUAE). The project's goal is to create a shared platform for multiple CBDC's to facilitate faster, cheaper, and more efficient cross-border payments and settlements.

In addition to the above, the project intends to address financial inclusion concerns, particularly in jurisdictions where correspondent banking (which connects countries to the global financial system) has been in retreat, causing additional costs and delays.

Project mBridge has reached the minimum viable product (MVP) stage, while broadening its international reach. The mBridge prototype demonstrated the ability to complete international transfers and foreign exchange operations in seconds, significantly reducing the time and cost compared to the traditional correspondent banking system. The platform also operates 24/7, offering continuous settlement capabilities.

Connecting Economies Through CBDC

After developing their new blockchain: the mBridge Ledger, which was custom built by central banks for central banks to serve as a specialized and flexible platform, a six week test was conducted through a pilot involving real-value transactions among 20 commercial banks from four different jurisdictions.

The pilot advanced multi-CBDC experimentation by settling real value directly on the platform and on behalf of corporate customers. over US$12 million was issued on the platform, facilitating over 160 payment and FX PvP transactions totaling more than US$22 million in value. PvP is a settlement mechanism that serves to reduce settlement risk in FX post-trade processing.

Impact on International Settlements

1. Efficiency and Cost Reduction: By replacing the complex correspondent banking system with a direct CBDC platform, mBridge can significantly reduce transaction times and costs. This change is particularly beneficial for jurisdictions with less developed banking infrastructures.
2. Financial Inclusion: The mBridge platform addresses the challenges of financial inclusion by providing an efficient payment system accessible to regions where correspondent banking services are limited or expensive.
3. Regulatory and Compliance Improvements: The project also explores robust governance and legal frameworks, ensuring that the platform complies with jurisdiction-specific regulations while maintaining high standards of security and transparency.
4. Economic Development: Faster and cheaper cross-border payments can enhance trade and economic activities, benefiting global economic development.

xRapid Use Case

xRapid is a Ripple solution designed to facilitate faster and cheaper cross-border payments. It uses XRP to provide on-demand liquidity, allowing financial institutions to convert fiat currency into XRP and then quickly into another fiat currency, bypassing the need for pre-funded accounts in destination countries. This significantly reduces the costs and time associated with traditional correspondent banking systems.

Ripple's Network and Partnerships

Ripple has established a wide network of partnerships with financial institutions and payment providers globally. Some notable partnerships include:

1. Santander: Utilizing Ripple's technology for its One Pay FX service.
2. American Express and Santander: Collaboration to enhance cross-border payments between the US and the UK.
3. MoneyGram: Leveraging Ripple’s XRP for cross-border payments and foreign exchange settlements.

XRP in CBDC Development

Ripple is also involved in the development of Central Bank Digital Currencies (CBDCs) using the XRP Ledger. Over eight countries, including Japan, Russia, and the UAE, are exploring the use of Ripple's technology to issue and manage their digital currencies. This initiative highlights Ripple's potential to revolutionize global finance by providing an efficient, secure, and scalable infrastructure for digital currency transactions.

Concerns

One concern about the initial versions of CBDCs is they will likely be centralized, despite conversation suggesting the contrary; decentralization. Centralization is the notion that this ecosystem is built, operated and issued by central banks of their respective governments. The centralized CBDC will likely be an exact replica of the current monetary system, but with powerful tracking functionality that can trace every cent and every dollar.

The major concern is not only tracking of consumer spending, but more the control of consumer spending habits. Money can be turned on or off with a simple click of a button, and could be the most powerful tool for totalitarian control.

Forbes case is that "it’s unlikely a central bank would ever cede control of its monetary policy to a decentralized network, that by definition, it could not control. Looking at history, such powerful transitions are rarely painless and would likely be the result of serious economic hardship (like widespread inflation) or social unrest."