There’s been pulse-quickening among de-dollarisation enthusiasts over developments in a project called mBridge. The excitement appears completely misplaced. De-dollarisation is a popular hobby by all sorts of serious and not-serious people, so the frivolous nature of recent mBridge developments won’t dissuade the lunatics, but we shouldn’t get carried away. mBridge is a payments toy in the financial sandbox. It is dominated by the Chinese financial authorities who are keen to develop tools to evade future sanctions. It is therefore viewed permanently with suspicion. It may have lots of ‘observing members’, but there are lots of observing members every time I go to the watch Premier League football, but there are only one set of real players on the pitch. Despite its propensity for outrageous fouls, the dollar team remain the only serious players on the reserve currency pitch. Will that last forever? No, and the Donald possible withdrawal from the IMF won’t help. But inertia is important.
What is mBridge? And why the recent excitement?
mBridge is a Central Bank Digital Currency platform for multiple members aiming to streamline cross-border payments. It was initiated by the Hong Kong branch of the BIS Innovation Hub in 2021, becoming a pilot project in 2022. More than that, it is a thinly veiled initiative for China to create an alternative international payments system. One of a number of initiatives, which includes the better known CIPS project. Unlike CIPS, mBridge seems to have had little practical impact and may be losing friends.
There are five active members of the mBridge project, all of them from Asia. They are: the Digital Currency Institute of the People’s Bank of China, the Hong Kong Monetary Authority (HKMA), Bank of Thailand (BOT), Central Bank of the United Arab Emirates and the Saudi Central Bank (SAMA) – the newest full participant in the mBridge project which joined in June 2024. mBridge uses distributed ledger technology with the aim to make international transactions faster and cheaper – against constant complaints of cost and delay around the existing international co-respondent banking system.
Reading some of the (admitedly thin) public reponses from non-Chinese members, the dominant reason for joining appears to be to gain experience in digital innovations such as blockchain, rather than establish a viable alternative payments system. Well, that’s great, and no doubt exciting for them. But they ain’t going to challenge the dollar through messing about with a ledger system.
In June 2024 the system progressed from pilot project to ‘minimum viable product’ stage. Since then some who should be more sceptical have championed mBridge as genuinely offering a viable alternative to the dollar based international payments system. As we shall see, that ‘progress’ is less than one might expect.
Recent excitement stems from a double-edged announcement from the BIS in November 2024 which appeared to endorse the earlier statement of forward movement in the project. This announcement has been deployed by enthusiastic de-dollarisation fans as evidence that great plans are afoot.
All is not what it seems, however.
For paid subscribers there follows a detailed discussion of BIS qualms about mBridge, the lack of a viable alternative international payments system (as demonstrated by the BIS approach to mBridge), the implications of a US withdrawal from the IMF (which seems possible and maybe likely) and why China doesn’t seem serious about change in the global financial architecture.