Earlier this week the European Central Bank (ECB) announced 48 new participants in the second wave of its wholesale DLT settlement trials. The unexpected news was the participation of the Hong Kong Monetary Authority (HKMA). The ECB trials include three central bank settlement solutions, only one of which is a wholesale CBDC (wCBDC) from the Banque de France. Based on today’s announcement, Hong Kong only plans to work with France’s CBDC platform DL3S to enable real time cross border payments.
In early March the HKMA unveiled Project Ensemble, a new wholesale CBDC initiative to support interbank payments using tokenized deposits. It also aims to provide a settlement asset for tokenization projects such as Hong Kong’s recent digital green bond.
Hence, the two central banks plan to test the interoperability between the Project Ensemble platform and France’s DL3S. According to an agreement signed between the two central banks, this work will underpin future tokenization collaboration efforts as well as work on other new technologies.
“As we have set the clear objective to improve cross-border payments, we have the opportunity brought by the Eurosystem exploratory work to collaborate with the HKMA on different use cases for payment versus payment between the tokenised form of the Hong Kong dollar and the Euro,” said Denis Beau, Banque de France First Deputy Governor. “The HKMA’s recent announcement for the launch of Project Ensemble was very timely to initiate this cooperation.”
How this trial differs from mBridge
Today’s announcement did not mention mBridge. The HKMA is one of five central banks participating in mBridge, the most advanced cross border CBDC initiative. Both the Banque de France and the ECB are mBridge observers. However, what is being proposed as part of the Eurosystem tests is quite different.
mBridge created a shared platform on which all the central banks have nodes and can issue their wholesale CBDC for cross border payment purposes. While these systems might connect to domestic ones – such as China’s digital yuan – the international payments happen on a common platform.
Three years ago the BIS outlined this route as one of three potential models for a multi-CBDC architecture. Another is to create common standards to build separate domestic systems, making them easier to interconnect. The third option is to interlink separate domestic CBDC systems, which is the route being trialed as part of the Eurosystem tests.
This third route is the hardest because the systems were not designed to interconnect. It means if France or Hong Kong want to link with another system, they more-or-less start again. However, if the work is part of a learning process, it could help in developing interoperability standards.
mBridge is currently in its minimum viable product (MVP) phase. Going forward, some countries may choose not to participate directly in mBridge. That would mean that the country’s currency is not directly supported. However, out of pragmatism, mBridge might choose to connect to a handful of external platforms that support important currencies. That remains to be seen.
