- Article
- Global Research
- Digital finance
Central bank digital currencies
Joining the dots.
Global central banks are pushing forward with the development of their respective digital currencies (CBDCs). However, a major hurdle is how to connect them but with agreed operating rules. This is no easy feat and much work is still needed.
Some central banks have already collaborated in this space. Going back to May 2019, the Hong Kong Monetary Authority (HKMA) and Bank of Thailand (BoT) signed a memorandum of understanding on fintech, which eventually led to the so-called ‘Project Inthanon-Lion Rock’ project. This was a corridor network to connect the CBDC blockchains of the HKMA (Lionrock) and BoT (Inthanon) to test cross-border payments at the wholesale level via a proof of concept platform. It was an ambitious attempt to facilitate a connection between the different central banks/authorities, aimed at enhancing the transparency, efficiency and compliance of operating such a digital corridor.
The HKMA and BoT’s efforts laid the foundations for a broader initiative, involving the People’s Bank of China’s Digital Currency Institute and the Central Bank of the United Arab Emirates alongside the Bank for International Settlements (BIS) Innovation Hub, the BoT and HKMA. This was called the Multiple CBDC Bridge or rather mBridge.
In late 2021, the published findings were encouraging on the mBridge with transactions being completed in seconds with lower costs and settlement risks. Following on from this, another initiative called ‘Project Dunbar’, that included the Reserve Bank of Australia, Monetary Authority of Singapore, Bank Negara Malaysia and the South African Reserve Bank, took the mBridge efforts a step forward. For example, it showed how financial institutions could transact CBDCs issued by the participating central banks directly or on a shared platform with one another. This pilot also addressed challenges in operating an mBridge platform across central banks and participating financial institutions.
Despite these promising steps, there has been a question as to how to connect even more central banks and to establish clear guidelines and principles for interoperability of their CBDCs. This is where the BIS and others are expanding their reach and will continue to do so, we believe. In our view, improving coordination may level the playing field, as central banks are on different paths with their CBDCs. It could set the rules of engagement, providing an operating umbrella to allow CBDCs to link up better. This sounds promising but there is a long list of challenges.
First published 6 September 2022.
Would you like to find out more? Click here* to read the full report (you must be a subscriber to HSBC Global Research).
To find out more about HSBC Global Research or to become a subscriber get in touch at askresearch@hsbc.com.
* Please note that by clicking on this link you are leaving the HSBC Global Banking & Markets website, therefore please be aware that the external site policies will differ from our website terms and conditions and privacy policy. The next site will open in a new browser window or tab.
The following analyst(s), who is(are) primarily responsible for this document, certifies(y) that the opinion(s), views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Paul Mackel and James Pomeroy
This document has been issued by the Research Department of HSBC.
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt (including derivatives) of companies covered in HSBC Research on a principal or agency basis or act as a market maker or liquidity provider in the securities/instruments mentioned in this report.
Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking, sales & trading, and principal trading revenues.
Whether, or in what time frame, an update of this analysis will be published is not determined in advance.
For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research.
Additional disclosures
- This report is dated as at 06 September 2022.
- All market data included in this report are dated as at close 02 September 2022, unless a different date and/or a specific time of day is indicated in the report.
- HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.
- You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of a financial instrument or of an investment fund.
This document has been issued by The Hongkong and Shanghai Banking Corporation Limited, which has based this document on information obtained from sources it believes to be reliable but which it has not independently verified. Neither The Hongkong and Shanghai Banking Corporation Limited nor any member of its group companies (“HSBC”) make any guarantee, representation or warranty nor accept any responsibility or liability as to the accuracy or completeness of this document and is not responsible for errors of transmission of factual or analytical data, nor is HSBC liable for damages arising out of any person’s reliance on this information. The information and opinions contained within the report are based upon publicly available information at the time of publication, represent the present judgment of HSBC and are subject to change without notice.
This document is not and should not be construed as an offer to sell or solicitation of an offer to purchase or subscribe for any investment or other investment products mentioned in it and/or to participate in any trading strategy. It does not constitute a prospectus or other offering document. Information in this document is general and should not be construed as personal advice, given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on it, consider the appropriateness of the information, having regard to their objectives, financial situation and needs. If necessary, seek professional investment and tax advice.
The decision and responsibility on whether or not to purchase, subscribe or sell (as applicable) must be taken by the investor. In no event will any member of the HSBC group be liable to the recipient for any direct or indirect or any other damages of any kind arising from or in connection with reliance on any information and materials herein.
Past performance is not necessarily a guide to future performance. The value of any investment or income may go down as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In case of investments for which there is no recognised market it may be difficult for investors to sell their investments or to obtain reliable information about its value or the extent of the risk to which it is exposed. Some of the statements contained in this document may be considered forward looking statements which provide current expectations or forecasts of future events. Such forward looking statements are not guarantees of future performance or events and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various factors.
This document is for information purposes only and may not be redistributed or passed on, directly or indirectly, to any other person, in whole or in part, for any purpose. The distribution of this document in other jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. By accepting this report, you agree to be bound by the foregoing instructions. If this report is received by a customer of an affiliate of HSBC, its provision to the recipient is subject to the terms of business in place between the recipient and such affiliate. The document is intended to be distributed in its entirety. Unless governing law permits otherwise, you must contact a HSBC Group member in your home jurisdiction if you wish to use HSBC Group services in effecting a transaction in any investment mentioned in this document.
Certain investment products mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types of investors. Investors should consult with their HSBC representative regarding the suitability of the investment products mentioned in this document.
HSBC and/or its officers, directors and employees may have positions in any securities in companies mentioned in this document. HSBC may act as market maker or may have assumed an underwriting commitment in the securities of companies discussed in this document (or in related investments), may sell or buy securities and may also perform or seek to perform investment banking or underwriting services for or relating to those companies and may also be represented on the supervisory board or any other committee of those companies.
From time to time research analysts conduct site visits of covered issuers. HSBC policies prohibit research analysts from accepting payment or reimbursement for travel expenses from the issuer for such visits.
The Hongkong and Shanghai Banking Corporation Limited is regulated by the Hong Kong Monetary Authority.
© Copyright 2022, The Hongkong and Shanghai Banking Corporation Limited, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of insert issuing entity name. MCI (P) 037/01/2022, MCI (P) 017/10/2021 [1199545]
Global Research
HSBC Global Research provides information, insights and thought-provoking ideas.
