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China integrates new blockchain consensus protocol into mBridge cross-border CBDC project

mBridge, the cross-border central bank digital currency (CBDC) project led by China, has switched to a new blockchain consensus protocol, local reports reveal.

mBridge is a CBDC partnership between the People’s Bank of China (PBoC), the Hong Kong Monetary Authority (HKMA), Thailand’s central bank, and the Central Bank of the United Arab Emirates. It offers a multi-CBDC arrangement between participants, enabling cheap and fast cross-border transfers.

The project was first deployed on a customized network that borrowed aspects of popular blockchain networks such as Ethereum’s smart contract language Solidity. It relied on HotStuff, a Byzantine fault-tolerant consensus protocol.

Local media outlets in China reported that mBridge has transitioned to Dashing Protocol. Developed by the PBoC’s Digital Currency Research Institute and Tsinghua University, Dashing aims to improve the performance of mBridge as it readies to welcome other countries into the project.

Speaking during the Beijing Digital Finance Forum, PBoC’s Di Gang said that Dashing supports the adaptability of complex network dynamics and is more secure than its predecessor. It also optimizes the consensus process to achieve high scalability and low latency, stated Di Gang, the deputy head of the Institute.

Di Gang further revealed that in a 91-node test, Dashing improved mBridge’s performance tenfold. The results were forwarded to the French and Swedish central banks, two observers of the mBridge project.

The protocol “can not only replace the consensus algorithm in the existing alliance chain as a separate module, but also help build a new financial infrastructure that is safe and efficient for multi-party collaboration,” he added.

Will mBridge threaten U.S. dollar dominance?

As the participants’ optimism with mBridge grows, so does the skepticism of Western powers. Observers from Europe and the U.S. claim that mBridge could make the Chinese yuan more appealing as an international currency. The U.S. dollar dominates global trade, accounting for 90% of the $6.6 trillion daily global forex transactions.

However, some experts believe that mBridge could be the beginning of a shift. The platform would allow a company in the UAE to pay in dirham for products but for the recipient in China or Thailand to receive it in yuan or baht, respectively. This would be a direct payment, eliminating intermediaries and making the transaction cheaper and faster.

According to data from the Bank for International Settlements, which is spearheading mBridge, trade between the four participants totaled over $560 billion in 2021. This figure could skyrocket as more central banks join the platform, making mBridge a significant threat to the greenback’s dominance.

The U.S. has issued warnings against mBridge to protect the dollar’s supremacy. American lawmakers have claimed it could be used to evade sanctions slapped against China.

Some experts, however, believe that mBridge is insignificant as a threat to the dollar. Eswar Prasad, a senior professor at Cornell University, says that the project is one of many that won’t make a significant dent in the greenback’s dominance.

“Such initiatives could chip away marginally at the dollar’s dominance as an international payment currency [but are] well short of being in a position to seriously rival the dollar,” the professor said.

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.

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