? mBridge Revolutionizing Cross-Border Payments and Beyond by leveraging CBDCs

Let's talk about how a new payment system using blockchain could change how money works and offer a whole new financial system. This system, called Project mBridge, led by BIS (Bank of International Settlement), could make a big difference in how money moves around the world. For example, Saudi Arabia recently started testing this new system with China. If it goes well, it could mean using fewer US dollars to buy and sell oil, changing how the world uses money today.

mBridge MVP and its Impact

BIS announced that Saudi Arabia officially participates in Project mBridge. This project, which started in 2021 as a collaboration between the Central Bank of China, Hong Kong, Thailand, and the United Arab Emirates to test CBDCs for cross-border trade and payments, has already reached? MVP? (Minimum Viable Product) status. This means that the mBridge project is not at the prototype stage but is ready and tested, instilling confidence in its potential to transform the global financial system.?

Let me explain to you precisely what is happening, why it's happening and how this will affect us and our future generations; when countries trade with each other at the center of their Commodities trading of Wheat, Sugar, Corn and Energy, it is the Petrodollar system that powers the entire thing now, Petrodollar system has allowed the United States to flourish for over 50 years because money flowing in from all over the world into US assets and treasury bonds which enable US to not only borrow money but to sell that debt to other countries.?

You will be surprised to know that there are now more US$100 bills in circulation than US$1 bills. What is even more interesting is that there are more US$100 bills in circulation outside the United States than inside. That is partially why the United States is one of the few countries in the entire world that can control its Consumer Price inflation, and it does that using the Federal Reserve Central Banking system.?

mBridge, a Central Bank Digital Currency system, is now challenging the old system. For decades, the US dollar has held the world Reserve currency status, much like the French franc and British pound did back in their time. Now, countries strive to be less dependent on the Petrodollar system, leading to a shift from old to new digital currencies. We need to prepare for this change because it's not just a possibility, it's inevitable.

You may be wondering, "Isn't money already digital?" I can use my credit cards and mobile banking apps; it is all digital, but not exactly. We have the same system we have used for hundreds of years. Imagine this: it is the 1600s; people are using gold coins to buy things, but gold is heavy to carry, easy to steal, hard to divide and not that hard to fake, so then comes the idea of paper money, and this was revolutionary we could use this to represent gold, people can deposit the gold in the bank to keep it secret keep it safe for another time;? fast forward a couple of decades though and the money is spent now these pieces of paper represent nothing other than the debt itself that was the 20th century when we got off the gold standard, and we moved to digital banking this is where numbers now represent our money on a computer but behind the numbers are still traditional Banks and middlemen that have what is called 'Counterparty Risk.'?

For example, when you use apps like Apple or Google Pay and PayPal, you send money to someone. You are not sending them money in real-time, but you are just sending them advice to claim the money; there has to be someone in the middle of those transaction actions that verify that the money you are sending is there in the first place and charge you a fee. They are closed during weekends or holidays, increasing the delay period or settlement time. That is the system we have in place right now, but then fast forward to the 21st century, and we get the birth of cryptocurrency. Cryptocurrencies are, of course, completely digital. They are decentralized. No one controls them, so there's no need for an intermediary to verify anything, and over time, that system grows. It turns skeptics today into Believers or tomorrow and eventually Believers into investors.?

Of course, crypto has problems like volatility and market manipulation. However, the underlying technology that makes them work is far better and less expensive to maintain than our legacy system. The central governments of the world couldn't just ignore blockchain benefits, so they are starting to adopt them into their system, and this is where CBDCs come into play today. We are in the midst of a technological revolution fundamentally changing our world, reshaping how we communicate, access information, and purchase goods and services.

The Rise of DLT and Multi-Country Settlement Adoptions

Recently, the rise of distributed Ledger technology, which offers a new approach to recording ownership of assets, has allowed for the creation of a range of new Financial products and services, including cryptocurrencies. Based on the same rails, CBDC is a digital version of a country's fiat currency; it uses the same technology to transfer value somewhere else.

The question is, why are Central governments around the world creating this system? Why are they participating in crypto technology? How is that useful?? Imagine there's an earthquake somewhere or a natural disaster. We can directly stimulate relief for people during a crisis without delay, which means there are no lost checks in the mail and no manual reconciliation issues. The other benefit is for large immigrants sending remittances to their home country. For example, US$ 830 billion worth of remittances were sent in 2022; imagine funds are available in milliseconds to the beneficiaries with very low or 'near' zero $ fees.

The system has many benefits, but are they really doing it to benefit some people? Yes. It is beyond that; the next time a country needs to buy its energy and oil from another country like Saudi Arabia, it does not need to rely on the old Petrodollar system.? In the near past, if that had ever happened and countries tried to trade outside the US dollar, the US could intervene and shut these transactions down immediately because everyone still used the Highway of the traditional banking system.

But, now, this new system can exist outside that Highway, and once mBridge goes live at scale, no more permission will be needed from the US Banking system; that is how these CBDCs could potentially challenge the dominance of the US dollar in the International Trade and Settlement system. mBridge allows the transfer of value across the world instantaneously and extremely cheaply using DLT (Distributed Ledger Technology), which is the same technology that powers Bitcoin, Ethereum or other popular blockchain networks. The only difference is that mBridge opted to regulate it by leaving decentralization.

Now for global trade between countries and central banks. Decentralization is only some of that important; it might be a downside if you are a cryptocurrency user. But let us see again how popular this mBridge system is becoming. So far, Switzerland's Bank for International Settlement has the central banks of China, Hong Kong, Thailand, and the United Arab Emirates onboarded on this technology. They've given access to the sandbox version to 27 other official entities, including the International Monetary Fund, the World Bank and the central banks of countries like Norway, South Korea, and Türkiye, along with HSBC, Goldman Sachs and the New York branch of the Federal Reserve. Hence, some massive players are involved in developing these CBDCs. You can see just how much the world of money is evolving right now in the very front of our eyes.

Central Bank Roadmap and Activities

According to the Atlantic Council website, which tracks the development of these currencies worldwide, roughly 134 countries and currency unions representing 98% of the global GDP are exploring these currencies. For example, 44 are in the research phase, 30 are already in development, 36 are in the pilot testing phase, and three have already been launched.

Switzerland's BIS has announced that the mBridge platform utilizes Ethereum's Solidity smart contract coding language. The Ethereum Virtual Machine (EVM) is considered robust and proven enough to be the basis for a new monetary system using crypto technology.

How does a central bank's digital currency affect everyone? According to the World Bank, there are 1.4 billion unbanked people. They need bank accounts and a way to access these Payment Systems when required. CBDCs could give people access to digital money without bank accounts and lower transaction costs, which are super expensive. For example, The average price of sending $200 internationally is about 6%, and CBDCs can significantly lower these costs. The total outward remittance size was US$212 Billion, of which US$12 billion was paid in fees; you can do the maths to see the huge savings.?mBridge offers Atomic settlement, which fulfils it.

How mBridge or DeFi solutions like XRP (Ripple) are efficient?

An on-chain solution like mBridge reduces the steps involved in cross-border payments. This is achieved by establishing direct connections between the payee's and payer's local banks while ensuring compatibility with domestic payment systems. mBridge will facilitate efficient cross-border payments and offer:

Faster: instant settlement within seconds.

Safer: Project mBridge settles transactions using central bank money. This emphasis on safety provides a sense of security and trust in the platform.

More accessible: Project mBridge offers direct, bilateral connectivity between any two banks on the platform. This emphasis on accessibility provides convenience and ease in cross-border transactions.

Cheaper: less settlement risk and fewer duplicated processes can lead to a reduction in overall costs.

Compliance: with banks ensuring compliance with each jurisdiction’s KYC/AML/CFT regulations off-bridge.

Settled with finality: based on legal and contractual arrangements and protections

What is Atomic Settlement, and How is it different then then SWIFT?

An atomic settlement over the blockchain is a process where a transaction is either completed at once or not. This ensures that all participants receive what they are entitled to, or none do, eliminating the risk that one party might fulfill their part of the transaction while the other does not.

By ensuring atomic settlement, mBridge guarantees that cross-border transactions are completed in full or not at all, delivering faster settlement time and reducing risk and cost. This eliminates the risk of one party completing their part of the transaction while the other party does not, thus reducing counterparty risk. Unlike SWIFT, where settlement can involve multiple steps and intermediaries, leading to potential delays and partial settlements, atomic settlement ensures that transactions are completed fully or not at all, eliminating partial settlements.

Technology Behind mBridge:

The mBridge is a purpose-built permissioned DLT called the 'mBridge ledger' or mBL. It is an EVM-compatible solution that allows smart contract codes to run on widely used EVM blockchain platforms such as Binance Smart Chain (BSC), Polygon, and Avalanche C-Chain. These smart contracts are coded in the Solidity programming language.

Key components of the mBridge environment include the front end, which provides the user interface (UI), and the back end, which implements crucial application features such as key management services (KMS), application programming interfaces (APIs), messaging modules, relational database, and other supporting components.

Impact of mBridge on Asset Tokenization Platforms like Al Mabrook

The mBridge initiative possesses the capacity to profoundly influence the tokenization of assets through the enhancement of interoperability, security, and efficiency.

By establishing a robust infrastructure for cross-border CBDC transactions, mBridge has the potential to bolster the expansion and embrace of tokenized assets, unlocking new prospects and markets. Through collaboration between central banks and regulatory bodies on this initiative, the integration of mBridge with tokenization platforms can pave the way for more innovative and secure financial products and services.

Conclusion and Trend Going Forward

The BRICS members have shifted their focus from creating a shared currency to developing mBridge payment systems in order to establish a more multipolar financial system. China has taken the lead in this initiative by expediting the development of the Cross-Border Interbank Payment System (CIPS).

The dollar remains the primary global reserve currency in the near and medium term. It continues to dominate foreign reserve holdings, trade invoicing, and global currency transactions. Currently, potential rivals such as the euro have limited ability to challenge the dollar.

mBridge continues to grow and challenge the USD as it gains adoption and popularity supported by BRICS consortium.

About Mabrook:

Mabrook focuses on bringing Halal off-chain assets onto the blockchain through a process known as Tokenization. Tokenization involves converting real physical assets, such as real estate, halal businesses, or commodities, into digital tokens. These tokens are classified as security or investment tokens. This approach enables the digital representation of an asset, allowing for easy trading and transfer, thus expanding access to a wider audience and promoting financial inclusion. Tokenization offers a more efficient method of transferring asset ownership by leveraging the secure and verified transaction recording capabilities of the blockchain ledger.

We conclude this article by expressing our gratitude to Allah, the Most High, for blessing us with the Prophet's ? guidance.

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Translation: Indeed Allah & His angels bless the Prophet; O you who have faith! Invoke blessings on him & invoke Peace upon him in a worthy manner. Quran:33:50

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