The Foreign Service Journal, April 2023

THE FOREIGN SERVICE JOURNAL | APRIL 2023 25 pleted a series of transactions on a pilot blockchain platform that allows different countries to use CBDCs to conduct international trade. mBridge is a pilot sponsored by the Bank for International Settlements in collaboration with the People’s Bank of China and the central banks of Hong Kong, Thailand, and the United Arab Emirates. It uses a private, permissioned blockchain that only participating central banks can access and reflects a rising aspira- tion among central bankers around the world to develop more efficient cross-border payment systems. The pilot only transmitted $22million worth of value, but it is a proof-of-concept revealing the seeds of a newway for companies to finance large-scale international transactions without going through the U.S.-influenced correspondent banking system.This multilateral activity is in its infancy, but China’s progress with the e-CNY positions it to lead further experimentation and to shape the standards discussion around CBDCs that will occur in the coming years. If a system likemBridge expands and serves as a viable global payment rail outside U.S. influence, it would undermine U.S. sanc- tions power and fundamentally alter the world balance of power. The U.S. is taking small, cautious steps on its own to explore the possibility of a U.S. CBDC and to innovate around payments. The U.S. Federal Reserve has made it clear that it has no current plan to launch a digital dollar, but is conducting research to help U.S. policymakers understand if it would even be in the interest of the U.S. to create one. The Boston Fed teamed up with the Massachu- setts Institute of Technology on a research initiative called Project Hamilton looking at a theoretical design for a U.S. CBDC. Notably, their project envisioned a framework where users’ transaction details would not be archived by the system. The New York Fed recently teamed up with several global com- mercial banks and a blockchain software firm to devise a proof- of-concept for banks to facilitate trade through digital versions of commercial bank assets on a distributed ledger platform. That proof-of-concept aims to use blockchain to “tokenize” assets with- out creating a formal CBDC. And the Fed has been planning for a few years to unveil an instant payment service called FedNow that will help U.S. financial institutions make faster payments to each other around the clock. It should be live in mid-2023.