Project mBridge and the transformation of cross border transactions

While many would have been mesmorised last week by what was taking place in plain sight with the  US military operation in capturing Nicolás Maduro and President Trump’s subsequent unembarrassed claims to the Orinoco belt oil,  we may be missing the “invisible gorilla” of this episode – that is if the US administration can control the potentially huge oil revenues generated from Venezuelan oil then this may go some way to protect the petrodollar which is under huge pressure from alternative funding structures. This in turn may slow down de-dollarisation in the western hemisphere.

In contrast to this, in the eastern hemisphere and the global south, there have been concerted moves to challenge the position of the US dollar as the global reserve currency, including with moves seeking to overhaul the way cross border transactions and international trade will be conducted and financed.

A key example of such a changing of the guard is Project mBridge, which may play a pivotal role in the de-dollarisation process. Project mBridge is a blockchain-based payments ledger, which is designed to support real-time, cross-border payments and foreign exchange transactions. Through using wholesale Central Bank Digital Currencies – CBDCs (to be used among banks rather than the general public), the aim is to allow cross-border payments to be immediate, cheap, widely accessible, and settled in a secure medium.

Led by the Bank for International Settlements’ Innovation Hub and several central banks, mBridge aims to tackle the inefficiencies in international payments. Currently, cross-border transactions often rely on correspondent banking, where payments pass through multiple banks, and on SWIFT, the global messaging system that instructs banks on money transfers. This process can be slow, costly, and difficult to track, often taking several days to settle.

By introducing a shared digital platform, mBridge allows central banks to issue and exchange digital currencies directly. Transactions could settle almost instantly, where payment and settlement occur simultaneously, reducing risk and eliminating the need for multiple intermediaries.

For international commercial transactions, the principle benefits are this could mean faster and more cost-effective payments, and reduced exposure to exchange rate fluctuations.

Project mBridge is just one of a number of challenger systems to SWIFT, such as China’s Cross-Border Interbank Payment System (CIPS). Any business with interests outside the western hemisphere will want to keep on top of developments as the payment landscape fragments. This firm routinely deal with payment provisions as part of cross border transactions and international contracts. 

If you need advice on this, please contact James Macdonald, Senior Associate in Corporate and Commercial team here.