The Bank for International Settlements (BIS) has published detailed plans for its cross-border wholesale central bank digital currency (CBDC) project nearly one year after completing a pilot study.
In the 12-page blueprint, the BIS shed light on the technical and governance standards for Project mBridge while hailing the functionalities of the project. The BIS remarked that the project offers a veritable solution to the high cost, bottlenecks, settlement risks, and operational complexities of cross-border transactions.
In terms of technical standards, Project mBridge relies on a “custom-built” distributed ledger to support the settlements of cross-border FX transactions via wholesale CBDCs. The distributed ledger, described as an “EVM-compatible solution,” ensures interoperability with a reliance on smart contracts, eliminating the need for third parties.
The BIS confirmed in its blueprint that the smart contract codes will be open-sourced for transparency among the project’s participants. For speed and resiliency of the network, Project mBridge relies on the novel dashing consensus algorithm, using partial confirmation of a block to achieve consensus to enable instant settlements.
Unlike previous reports, the new blueprint mentions using Legal Entity Identifiers (LEIs) to comply with global anti-money laundering (AML) checks. To ensure privacy and confidentiality of the system, Project mBridge makes use of pseudonymous addresses and encrypted payment meta-data payloads.
“For each cross-border transaction on the platform, only the two commercial bank counterparties, their respective central banks and the CBDC-issuing central bank can identify the parties involved in the transaction and decrypt the payment transaction meta-data,” the BIS report read.
On the governance side, Project mBridge leans on a comprehensive legal framework for its day-to-day operations led by a Steering Committee. Beneath the steering committee are four subcommittees dealing with compliance, technology, legal, and policy issues.
The blueprint unveiled 25 observing members for the project drawn from global central banks and international financial agencies. Per the document, 11 of the observers have already participated in Project mBridge’s sandbox testing, “providing valuable feedback.”
An MVP on the horizon
With technical and governance standards achieved, Project mBridge is moving closer to launching a minimum viable product (MVP) in 2024. To achieve this, the BIS says it will explore several functionalities, including platform statistics, queue management, and align with the CPMI frameworks.
Ahead of the MVP launch, the BIS disclosed that it will probe technology solutions “to support FX and liquidity and AML/CFT compliance” while seeking to onboard new participants to the project.
Currently, Project mBridge’s participants comprise banking regulators and commercial banks from Hong Kong, the United Arab Emirates (UAE), China, and Thailand.
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
Watch: Building CBDC systems on Bitcoin
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