New data shows that Shenzhen is the leading Chinese city using central bank digital currencies (CBDCs). The companies in the coastal cities are tilting toward CBDC to improve cross-border transactions by reducing costs and making transaction times faster.
A report from local news outlet 21Caijing pointed out that Shenzhen played a vital role in the recent mBridge (m-CBDC Bridge) pilot that featured the central banks of China, the United Arab Emirates (UAE), Thailand, and Hong Kong. By the end of the experiment, Shenzhen-based companies single-handedly accounted for $7.3 million in transaction volumes out of the $22 million made by the four participating countries.
Shenzhen Local Financial Supervision Bureau pointed out that the firms in the city used the mCBDC to facilitate import and export trade. As a coastal city with high volumes of commercial activity, Shenzhen recorded exports worth an impressive $302 million in 2022.
Given the integral position of Shenzhen in high-volume commerce, the People’s Bank of China (PBoC) chose it as one of the first cities that will participate in the testing of the digital yuan back in 2020. The PBoC notes that Shenzhen has been receptive to using the CBDC after approving its deployment in the transportation sector.
A spokesperson at the Local Financial Bureau pointed out that the city “will give full play to its role as a cross-border payment center and actively expand the participation of local enterprises 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 cloak of legality and the backing of central banks, it has been subjected to backlash over privacy concerns and how to apply it multilaterally across several jurisdictions.
The push for collaborative CBDCs
Several tests have been carried out to test the efficacy of CBDCs in improving the state of cross-border payments. The Bank for International Settlements (BIS) leads the experiments with a number of trials under its belt.
Top of the list is the recently concluded mCBDC pilot it carried out in conjunction with financial institutions from China, the UAE, Thailand, and Hong Kong. The experiment, which ran for a month, saw the participants explore the technology stack of the proposed CBDC and cross-pollinated ideas over legal issues that entities can face utilizing the novel technology.
A similar trial has been proposed to feature the central banks in Sweden, Norway, and Israel to explore the use of CBDC in “international retail and remittance payment.” Titled Project Icebreaker, the results from the trial are expected in the first quarter of 2023, with the BIS lining up more trials.
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