The Chinese-led mBridge protocol is making progress, with the second digital yuan payment transaction publicly recorded. India's CBDC program has five million users but no public transaction figures to share. Experimentation with tokenization is expanding across the region.
For all the key details of new Distributed Ledger Technology (DLT) projects in the banking world, real-world asset (RWA) tokenization, stablecoins, and central bank digital currency (CBDC) updates, the Observers 'Banking and CBDC Roundup' has you covered.
We start with the mBridge, a cross-border CBDC project China has effectively led. Last week, the Chongqing Branch of China Construction Bank, under the guidance of the municipality's branch of the People's Bank of China, successfully sent a transaction for 275,100 yuan (around $39,000) through the mBridge protocol. The transaction was made to settle a bill for imported fruits for Chongqing Jinguoyuan Industrial Co., Ltd., a leading domestic fruit industry company.
This is the second publicly reported transaction made with digital yuan on the mBridge platform. The first one was made in July 2024 by the Guangdong Branch of the Industrial and Commercial Bank of China, right after BIS announced the completion of the mBridge's minimum viable product (MVP)
mBridge, a multiple CBDC project exploring the technical feasibility of cross-border CBDCs, is a collaborative project of the central banks of China, Hong Kong, UAE, Thailand, and Saudi Arabia, with the participation of the Swiss-based Bank of International Settlements (BIS) and 26 observers. It is significantly influenced by China, as the technical development and major components, such as the consensus algorithm, are authored by the Chinese. Cambridge is also compatible with the Ethereum Virtual Machine - the computation engine of the largest public ledger.
Internally, China is promoting the use of its CBDC with various government subsidies and promotions. So-called "red envelopes" are distributed in the participating municipalities for programs such as EV cars, shopping festivals, etc. Commercial banks through which the CBDC wallets are operated are tasked with implementing a certain list of payment scenarios for the digital currency. Per our estimates, the next milestone of the annual volume of transactions set for the retail CBDV is 1 trillion dollar equivalent.
In India, e-rupee CBDC progress is measured at a lesser scale. During his opening address at the Digital Public Infrastructure and Emerging Technologies Conference this Monday, the governor of the Reserve Bank of India, Shri Shaktikanta Das, reported 5 million users in the pilot program without mentioning the number of active users and the volume of transactions.
India has a very developed real-time payment network, UPI, through which more than $1.6 trillion of transactions are done annually. Observers are connecting the slow adoption of the digital rupee with a significant penetration of that payment method.
However, Governor Das pointed to the benefits of e-rupee, which come from its programmability features. In a highlighted real use-case, Indian farmers could access agricultural credit without presenting the land title to the banks. Instead, the banks programmed the end use for purchase, thus establishing the identity of a farmer through the end use of funds.
Talking about interoperability between other countries and cross-border use of CBDC, Das said:
[...] a key challenge could be the fact that countries may prefer to design their own systems as per their domestic considerations. We can overcome this challenge by developing a plug and play system which allows replicability while also maintaining the sovereignty of respective countries.
Just as central banks use the technical know-how of distributed ledgers for their CBDCs, commercial banks see its application in developing new payment methods based on their existing systems. Tokenized deposits are one promising direction since tokens backed by deposits can potentially compete with stablecoins while remaining within the current banking mandate. Bank of Japan has issued a report discussing this and other aspects of the novel concept.
Hong Kong banks, together with mainland China banks and the commercial sector, are also engaged in tokenization experiments. In March, the Hong Kong Monetary Authority (HKMA) launched Project Ensemble, a project aimed at developing a new financial market infrastructure based on tokenization. This would include tokenizing securities and real-world assets, including deposits and their interbank settlement with a wholesale CBDC.
Last week, the HKMA opened a sandbox to begin experimenting. The current list of participating banks includes HSBC, Standard Chartered, Bank of China, and Hang Seng Bank. Other direct participants are Microsoft Hong Kong, Ant Digital Technologies, and Hashkey Group, as well as external partners such as BlackRock, BOCHK Asset Management Limited, Central Moneymarkets Unit, CSOP Asset Management Limited, Franklin Templeton, and others. Reportedly, HSBC has already completed three proof-of-concepts with the sandbox.