With four Asian judicial regions testing out digital currencies issued by the state and international settlement banks participating in the pilot project, the total cross-border payment and international exchange transactions exceeded $22 million, raising questions about the future of the US Dollar’s effect on global trade.
The Rise of Central Bank Digital Currencies in Asia: Cross-Border Payment Trials
Central Bank Digital Currencies (CBDC) are gaining traction in Asia as four judicial regions in the region recently tested international settlement with digital currencies issued by the state. In total, the experiment handled over $22 million-worth of cross-border payments and foreign exchange transactions with the help of the Banks for International Settlements Innovation Center and the participation of banks from different countries.
As the reality of digital currencies quickly approaches, the major players in the international trading market are looking for ways to gain control of the expanding technology. China, Hong Kong, Thailand and the United Arab Emirates (UAE) were just some of the countries involved in the recent trial, giving a glimpse of how the system works and what possibilities are available on the horizon. Notably, China was represented in the experiment by its largest banks, as well as its up-and-coming Apubzabi platform, and ICBC Asia’s subsidiaries in Hong Kong.
The digitization of currency has the potential to shift the current global financial order away from hierarchical models anchored by the US dollar, to one that is more decentralized, with different currencies and payment methods connecting international markets. While this shift could have a number of advantages in terms of convenience and efficiency, it could also have geopolitical implications, such as less reliance on the US dollar.
This is especially true with the increasing number of experiments in CBDC technology and its potential applications ranging from borderless payment networks to automatically settling cross-border contracts. Russia, for instance, is currently developing a cross-border settlement system with a digital ruble, and seems to be exploring the possibility of using digital currency to settle with China, one of its trading partners.
The successful pilots conducted by central banks in Asia have highlighted the potential of the digital currency technology to facilitate digital transactions, which could benefit asset holders, corporations, and countries in terms of logistics, cost savings, and cross-border services. With this, the involvement of the US in monitoring, learning, and shaping digital currency agendas at international institutions, becomes all the more important as digital currencies slowly become more integrated into the global financial market.
While not all countries have been involved in the CBDC experiment, more countries, especially in Asia, have started exploring their own potential applications. Earlier this year, the Bank for International Settlement (BIS) announced its intention to increase its focus on the development and research of CBDCs in order to improve payments systems and explore new international partnerships. They are also backing the launch of ‘Project Pyxtrial’, an experiment that seeks to enable the “systemic monitoring of stablecoins.”
At the moment, only 11 countries have been fully launched as CBDCs, with most located in the Caribbean and Nigeria, while 17 more countries are currently piloting the technology, mostly in Asia. As the development and research of digital currency increases throughout Asia, it is important for US policymakers to engage in the process and be active in shaping the international agenda of CBDCs.