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Thailand and China ditching the dollar

Thu 23 May 2024 ▪ 7 min of reading ▪ by Nicolas T.
Getting informed Payment

Beijing and Bangkok to dedollarize their trade by promoting their national currencies. With CBDCs? What about Bitcoin?


Thailand and China no longer want the dollar

The central banks of the two nations signed an agreement this Tuesday aiming to strengthen cooperation to facilitate cross-border settlements in local currencies.

Not a month goes by without nations taking steps to bypass the dollar in their bilateral trade. India and Nigeria concluded a similar agreement just last week.

Dedollarization is a reality and the Russian president emphasized it again during his recent state visit to China. On this topic, don’t miss our article: Putin cuts a dollar short.

Little information has emerged on how the two Asian countries plan to facilitate their trade. We do know, however, that Thailand and China are working together on the mBridge project (multiple CBDC Bridge).

Some consider this international CBDC transaction project could break the monopoly of the SWIFT network. The project involves the Bank for International Settlements (BIS) and the central banks of China, Hong Kong, Thailand, and the United Arab Emirates.

China is concerned that its economy relies on payment networks controlled by the West. Recall that Iran and Russia were disconnected from the SWIFT network. That is to say, two countries openly hostile to the dollar…

A redundant system?

Some may wonder why China is working on the mBridge project when it already uses the CIPS (China’s Cross-border Interbank Payment System).

The growth of CPIS has been explosive since its launch in 2015. It processed more than 123 trillion yuan in 2023, compared to 10 trillion in 2021 and 2 trillion in 2017. It now connects nearly 1,500 banks in 114 countries.

CIPS is not (yet) a threat to the SWIFT network’s monopoly since it is only a yuan payment system. SWIFT is a more global messaging system serving as an intermediary for payment systems linked to national currencies. More than 11,000 banks use SWIFT around the world.

The mBridge project aims to create an international payment network in CBDCs that would no longer need a messaging system like SWIFT. Banks would connect directly via their central bank. In China, mBridge is connected to the e-CNY CBDC system.

Some US officials fear that the mBridge network will give Beijing an edge in using CBDCs to revolutionize international payments.

The US fears that it will allow other currencies to overshadow the dollar, the currency in which half of the approximately 32 trillion dollars exchanged globally each year is denominated.

Josh Lipsky, director of the GeoEconomics Center at the American think tank Atlantic Council, said that the fact that mBridge is taking shape under the auspices of the BIS raises eyebrows in Washington. Especially since China is getting rid of the dollar at a record pace.

mBridge faces reality

According to two people with direct knowledge of the project, the technological backbone is a blockchain built by the Chinese. It notably uses Ethereum’s Solidity smart contract language.

Its goal is to compete with the current system. Payments today happen in two stages: the message and the movement of money. For example, if I want to pay someone in China, my bank must have an account (Nostro) in a Chinese bank and request via a swift message to pay the recipient.

Upon receiving the message, the Chinese bank transfers the money to the recipient who is often in another bank. In this case, a national Chinese transfer will be needed, which constitutes a third step.

Furthermore, if my bank does not have a Nostro account with a Chinese bank, it will have to send the payment through another bank that has an account in China, incurring additional fees and a fourth step.

With mBridge, the promise is that banks will no longer need a bank account in a Chinese bank. Banks would go directly on mBridge to buy e-CNY (yuan CBDC) before transferring them directly to the Chinese recipient’s bank.

Eliminating messages means that banks no longer need to hold foreign accounts filled with liquidity, reducing the costs of cross-border payments.

Not so fast…

For it to work, exchange rates on mBridge must be very competitive. If not, the savings made on Nostro accounts will be negated.

However, competitive exchange rates require significant volumes. This is one of the reasons why the dollar is central to the international monetary system.

The greenback has been the global standard since the Bretton Woods agreements, against which all currencies float. That is, when a Peruvian company makes a transfer to a Kazakh client, the conversion does not happen via a Sol/Tenge pair. The sol is first converted into dollars, which will then be converted into tenge.

It is therefore hard to imagine how mBridge and low-volume CBDCs could transform international payments.

Conversely, Bitcoin is a potential standard already boasting impressive volumes. They accounted for the equivalent of 25 billion dollars over the past 24 hours according to onchainfx.

Bitcoin has the immense advantage of being a currency as well as a payment system. Two-in-one. Moreover, it’s a stateless system because it is decentralized. This is a key parameter. Indeed, who says mBridge won’t be used for political purposes as well?

Central banks may struggle to maintain control over international transfers, but it’s probably impossible to outperform the technological marvel that is Bitcoin.

And given the current intense geopolitical tensions turning into a trade war, the world needs a global payment system immune to political whims more than ever. And not CBDCs

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Nicolas T. avatar
Nicolas T.

Bitcoin, geopolitical, economic and energy journalist.


The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.