The UAE and China made the first cross-border transaction in renminbi, moving 50 million dirhams ($13.6 million) using the mBridge network. The network, which connects the central banks of Hong Kong, Thailand, the UAE and China, helps de-dollarize amid US tensions. The rise of dollar-backed stablecoins could boost dollar dominance and alter the global financial landscape, Morgan Stanley says.
The United Arab Emirates (UAE) and China have carried out the first cross-border central bank digital currency (CBDC) transaction in renminbi (RMB). The payment moved RMB and 50 million between the UAE and China using the mBridge infrastructure at a time when the dollar’s supremacy in Asia is in question.
The People’s Bank of China and the Central Bank of the UAE successfully exchanged Dh50 million ($13.6 million) in the first real-time payment made through their customized interbank network. The network, which ran its first pilot in 2014, connects the central banks of Hong Kong, China, the UAE and Thailand.
China Challenges the US with CBDC Tests
Two transactions were made yesterday during a high-level meeting in Abu Dhabi. Saudi Prince Mansour and Chinese Ambassador Yiming Zhang jointly sent Dh50 million to China. At the same time, the Chinese central bank made a remittance payment in digital RMB.
The transaction was the first real-time payment on the mBridge blockchain infrastructure, which connects the central banks of Hong Kong, Thailand, UAE and China. The network’s first pilot project was carried out in 2014. However, its importance has grown as China sought to de-dollarize itself amid tensions with the United States.
The mBridge network is not operational in the strict sense, though. Although plans indicate it will be launched in the middle of the year, the Bank for International Settlements says it is too early to set dates. The project has yet to address exchange costs and liquidity.
US CBDC and Stablecoins Will Support Dominion
One of the challenges of de-dollarization is that many countries have easier access to the US dollar than any other currency. In December last year, about 58% of central banks’ foreign exchange reserves were US dollars.
This phenomenon means that dollar-rich countries that conduct international trade in dollars have less counterparty risk. In Argentina, where the fiat currency has been devalued, most merchants prefer dollars. Even Javier Milei, the recently elected libertarian leader, does not support Bitcoin as much as US dollars.
According to David W. Birch, author of a book titled The Currency Cold War, the preference for dollars supports the creation of a US central bank digital currency. He claims that the race towards an American CBDC is like the space race between the United States and Russia. In his opinion, the United States should go all out to win it.
Andrew Peel, head of cryptocurrencies at Morgan Stanley, said the US dollar’s dominance could benefit from the rise of dollar stablecoins. Growing interest from institutional players like Visa and increasing settlements on blockchain mean that stablecoins can significantly impact the financial sector.
However, Danny Chong, CEO of DeFi performance platform Tranchess and former investment banker, disagrees. Speaking to a media outlet about the recent boom in tokenization and the potential of stablecoins, he said the following:
“CBDCs and stablecoins are… very close. Unbeknownst to many, there has been a rise in foreign stablecoins. The Japanese yen-backed stablecoin is becoming one of the main assets exchanged for foreign currencies. “Global usage of this stablecoin could soon surpass that of its dollar-based counterparts.”
By Audy Castaneda
