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| China is studying digital payments in cooperation with the UAE |
China has worked with the United Arab Emirates, Hong Kong, and Thailand, as well as the Bank for International Settlements (BIS), to investigate cross-border payments in digital currencies.
The move could open a new way for China to increase its use of the renminbi for global payments and weaken the US dollar's position as the world's most important reserve currency.
The Digital Currency Research Institute of the People's Bank of China announced that it has joined the Central Bank's multi-digital currency bridge for the cross-border payments project.
According to the press release, the multi-currency central bank bridge is a cross-border payments project initiated by the Hong Kong Monetary Authority and the Bank of Thailand in 2019.
The Central Bank of the United Arab Emirates has also joined the project.
The project extension was supported by the Bank of Hong Kong's Innovation Center for International Settlements, which was set up by Basel in Switzerland to study key financial technologies for the central bank.
The new name was originally called Inthanon-LionRock, which means a more comprehensive project for others.
It is too early to tell the direction of the project, but this is in line with Beijing's long-term use of its sovereign digital currency to encourage the use of the renminbi in international payments.
Although the Proof of Concept project is currently only an alliance between Beijing, Hong Kong, Bangkok and Abu Dhabi, the support provided by the Bank for International Settlements means that it is supported by the 63 institutions owned by the central bank.
The deal also took place a few weeks after the creation of a joint venture between the People's Bank of China Digital Currency Research Institute and SWIFT. SWIFT is the main network promoting international interbank payments.
According to a press release issued by the Bank for International Settlements, the project will leverage the capabilities of distributed ledger technology to support real-time cross-border foreign exchange transactions in many countries around the clock.
The project aims to create an environment in which more central banks in Asia and other regions can investigate distributed ledger technologies, address vulnerabilities, support cross-border transfers, and solve international business and capital markets transactions.
Currently the most popular distributed ledger technology is blockchain, which enables Bitcoin. However, the People's Bank of China has not clearly defined the role that the blockchain could play in electronic payment projects for digital currencies.
The People's Bank of China recently tested its plans to accelerate its digital currency plans in Shenzhen, Suzhou and Beijing.
Many other central banks are still in the early stages of studying central bank digital currencies and their potential impact on the financial system.
A survey published by the Bank for International Settlements in January showed that the central bank, which represents a fifth of the world's population, is expected to adopt a digital currency for retail sale in the next three years.
One of the main benefits of using digital systems is that payments and transfers are made in real time, said the former governor of the People's Bank of China and the lead official of the Chinese digital currency plan.
China has not set an official schedule for launching its digital currency, but it is expected to spread widely before the 2022 Beijing Winter Olympics.