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Saudis join intl digital currency project

By ZHENG YIRAN and ZHOU LANXU | CHINA DAILY | Updated: 2024-06-10 08:50
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This undated file photo shows an exterior view of the People's Bank of China in Beijing, capital of China. [Photo/Xinhua]

Saudi Arabia has joined Project mBridge — a cross-border platform for experimenting with central bank digital currencies for international trade — as a full participant, which experts said will add resilience to global trade by facilitating renminbi settlement for bulk commodities trade.

Aiming to construct a robust and innovative cross-border payment infrastructure, the Saudi Central Bank (SAMA), said recently that it has joined the mBridge project as a participant in the project's minimum viable product platform.

Project mBridge resulted from collaboration starting in 2021 between the Bank for International Settlements' innovation arm, the Bank of Thailand, the Central Bank of the United Arab Emirates, the Digital Currency Institute of the People's Bank of China, and the Hong Kong Monetary Authority.

The mBridge project has now reached the minimum viable product stage, inviting private sector enterprises to propose new solutions that help develop the platform and showcase all of its potential, according to an announcement by the Bank for International Settlements.

Experts said that entering the minimum viable product stage means that mBridge is now available to commercial banks in participating members' areas of jurisdiction for cross-border payment use, marking a breakthrough in facilitation of cross-border payments using central bank digital currencies.

Zhou Mi, a senior researcher at the Chinese Academy of International Trade and Economic Cooperation, said: "Digital renminbi is an integral part of the global currency system. Including digital renminbi in the settlement of oil trade between China and Saudi Arabia would be beneficial for all parties. For Saudi Arabia, the implementation of renminbi settlement in cross-border trade would optimize the structure of its settlement currency."

Zhan Junhao, founder of Fujian Huace Brand Positioning Consulting, said that as Saudi Arabia is a country rich in oil resources, its possible adoption of digital renminbi for oil trade settlement would "greatly promote the convenience and efficiency of bilateral trade".

"Specifically, the immediacy of digital renminbi settlement will make transactions quicker, reducing intermediate links and costs," Zhan said.

"In addition, using digital renminbi settlement can help Saudi Arabia avoid risks caused by fluctuations in the US dollar exchange rate and ensure the stability of trade returns," he added.

According to Zhou, the senior researcher, "The trade of oil, an important part of bulk commodities, has a significant impact on global trade.

"Digital renminbi settlement in oil trade would improve the resilience of global trade, reduce global economic fluctuations, and strengthen the resilience of economic development in various global parties," Zhou added.

While the Saudi Central Bank is joining as the sixth "full participant" in mBridge, the Bank for International Settlements said that more than 26 entities, including the International Monetary Fund, the World Bank and the European Central Bank, have signed on as observing members.

"In the context of geopolitical conflicts, some countries around the world are using settlement currencies to achieve their political goals, which still inserts strong economic disruptions into the global economy. With the implementation of projects such as mBridge, participants are seeking cooperation between each other," Zhou said.

"Digital renminbi settlement would help reduce differences in trade standards, increase the convenience of trade and investment, and establish necessary institutional guarantees. This is crucial for continuously improving the global financial system, strengthening financial support for the real economy, and promoting global economic recovery," the senior researcher added.

Jin Ding, a researcher and academic adviser to the China Finance 40 Forum and executive vice-chairman of the academic committee of the China Institute for Innovation and Development Strategy, said that over the next 15 years, with the gradual implementation of renminbi settlement in cross-border trade as well as in bulk commodity imports and Chinese outbound investments, the internationalization of the renminbi is expected to see major progress.

"It has been forecast that the proportion of renminbi in payment settlements will increase by one percentage point each year, reaching around 17 percent by 2035," Jin told China Daily in an earlier interview.

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