New data shows that Shenzhen is the first Chinese city using central bank digital currencies (CBDC). Businesses in coastal cities are turning to CBDCs to improve cross-border transactions by reducing costs and speeding up transaction times.
A report by local media 21Caijing pointed out that Shenzhen played a vital role in the recent mBridge (m-CBDC Bridge) pilot which featured the central banks of China, United Arab Emirates (UAE), Thailand and Hong Kong. . At the end of the experiment, Shenzhen-based companies alone accounted for $7.3 million in transaction volumes out of the $22 million made by the four participating countries.
Shenzhen’s local Financial Supervisory Bureau pointed out that companies in the city use mCBDC to facilitate import and export trade. As a coastal city with high trade activity volumes, Shenzhen recorded exports worth an impressive $302 million in 2022.
Considering Shenzhen’s integral position in high-volume trade, the People’s Bank of China (PBoC) chose it as one of the first cities to participate in the digital yuan test in 2020. The PBoC notes that Shenzhen has been receptive to using the CBDC after approving its deployment in the transport sector.
A spokesperson for the Local Financial Bureau stressed that the city “will fully play its role as a cross-border payment hub and actively expand the participation of local businesses in the currency bridge project.”
CBDCs have been touted as a viable alternative to virtual currencies and stablecoins, often criticized for their fluctuating value and susceptibility to scams. While CBDCs have the mantle of legality and the backing of central banks, they have been subject to backlash over privacy issues and how to apply it multilaterally in multiple jurisdictions.
The Rise of Collaborative CBDCs
Several tests have been conducted to test the effectiveness of CBDCs in improving the state of cross-border payments. The Bank for International Settlements (BIS) is leading the experiments with a number of trials to its credit.
At the top of the list is the recently concluded mCBDC pilot that he carried out in collaboration with financial institutions from China, the United Arab Emirates, Thailand and Hong Kong. The month-long experience saw participants explore the CBDC’s proposed technology stack and cross-reference ideas on the legal issues entities may face using the new technology.
A similar trial has been proposed for the central banks of Sweden, Norway and Israel to explore the use of the CBDC in “international retail payment and remittance”. Titled Project Icebreaker, the results of the trial are expected in the first quarter of 2023, with the BIS planning further trials.
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