China Cross border payment using blockchain
China wants to promote cross border payment using blockchain. They have developed the mBridge platform. 

I want to know how this platform really works. More importantly, I want to understand the underlying problems that this platform seeks to address. 

I am already making payment to third parties in other countries using the Wise platform. There are many other platforms that offer this transfer service, but I want to talk about Wise because I have already used it. 

This is how the transfer works:

1. I open an account in Wise. My recipient also opens an account in Wise.

2. I transfer money from by bank account to Wise in SGD. From that account, I make a transfer to the recipient in SGD. As the recipient has the account in USD, Wise converts SGD to USD and credits the recipient's account.

This arrangement works well. The fee charged by Wise is much lower than the fee charged by the bank for a transfer. The transfer is instantaneous.

Wise does not need to use a blockchain platform to handle the transfer.

Although I used SGD and USD as the currency to make the payment, I could use any other currency, such as RMB, JYP, EUR, GBP for payment. 

If the Wise platform can handle the cross border payment easily, why is there a need for a central bank, like the People's Bank of China, to build the mBridge platform, using blockchain technology, for cross border payments?

Some of the benefits of blockchain technology advanced by its advocates are:

1. Blockchain does not rely on a central authority (such as Wise). The technology allows the control to be "decentralized".
2. Blockchain allows anonymity.

I am not clear about the purported benefits. My reasons are:

1. I do not see any advantage of a "decentralized" structure. I have to rely on Wise to make the transfer. If I do not trust the Wise platform, I will not keep my money there. I will only transfer money to the platform when I need to make a payment. 

2. I do not see the benefit of anonymity. I am not engaged in criminal activities. I am not making a transfer to finance terrorists. I am not evading tax. There is no need for anonymity. Actually, I prefer my identity to be known to the recipient. In any case, the authority will be able to trace my money flow, if they wish to, using the current banking system. 

I am therefore not clear about the advantages of using blockchain for cross border payments, when existing platforms (such as Wise) can serve the purpose well.

China started the international trial of its CBDC (central bank digital currency) or e-yuan during the Beijing Winter Olympics in January 2022. I have not heard about the progress of its adoption. I think that it was not really useful and the project was not successful.

In any case, there was no need to make payment using the CBDC on that occasion. The foreigners could be allowed to use open an account with Alipay or Wechat Pay and make their cashless payments on these platforms. 

I hope that China think through these issues and reconsider the need to develop a cross border payment system using blockchain. 

Tan Kin Lian




 

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