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Four years ago, the central bank of the central bank, International Village Bank (BIS), announced an innovation project carrying the ugly moniker “Mbridge.”
It aims to create a digital currency for cross-border central banks that link central banks of China, Hong Kong, Thailand and the United Arab Emirates.
You might think this is inexplicable. If so, think again: The nerdy project represents a bigger battle that could become deeply important under President Donald Trump.
More specifically, last fall, just before the US election, BIS was unexpectedly drawn from Mbridge, effectively handing over control of China and other things. BIS argued that this was because it reached the “minimum viable product” stage. But few people believe this. “Americans demanded (BIS) because they are threatened,” one participant explained that Washington was worried that “may be used to avoid sanctions.”
And Bis Head’s Agustin Carstens has publicly denied that speculation is bubbly, especially since Trump is unmistakably in a financial war, but as it is the truth of last month, he is “They repeatedly pose a “100% tariff” on countries that are trying to replace the powerful. US dollars with new currency or payment systems.”
So investors need to see what happens next. While it’s been a Trump threat to trade tariffs that have been grabbing headlines lately, this inconspicuous battle over money is deeply important. After all (as I mentioned before), it is the true source of America’s hegemonic power today, and what Washington wants to defend is the global dollar-based financial system.
On paper, Trump has no reason to worry. Recent data from the IMF shows that the dollar accounts for around 58% of central bank reserves. This is slightly lower than the beginning of the century, but recent diversification includes smaller currencies rather than rivals such as the euro or yuan.
More prominent and rapid data suggests that 49.1% of all payments were higher for 12 years and 12 years higher.
However, there are three important considerations. First, central banks are covering gold “at a glance pace” as the World Gold Council recently pointed out. It suggests their desire to hedge their Fiat Dollar exposure.
Secondly, rapid data can be a bit misleading as the activity is swollen outside of Western platforms. China has built its own inter-border payment system. It’s small and rudimentary, but with 160 members, trading volume has increased by 80% since 2022.
Third, the financial weaponization of Washington does not seem to have stolen and promote others’ efforts to imagine alternatives. So why Mbridge is important: If these digital pipes work at speed and scale (large “IFs”), this challenges the “hub and spoke” system centered around the US Federal Reserve.
So how does Washington respond? Chris Giancarlo, head of the Commodity Futures Trade Commission in the first Trump administration, hopes it will use carrots. That means defending good economic “value” and he tells me and embraces more cyber innovation. His co-leading “Digital Dollar Project” outlines how to do this next week.
This is very wise. But it appears that Trump is intended to use sticks. Last month he issued an executive order banning the use of digital currencies by American central banks, in order to “threate the stability of the financial system, individual privacy, and US sovereignty.”
Instead, he defended Bitcoin (don’t worry about this being considered a Fiat Dollar hedge). More importantly, he supported “growth of stubcoins supported by legal, legal and legal dollars around the world.”
This may seem strange, especially as it is the exact opposite of the European Central Bank. Some cynicians believe it is undoubtedly attributed to the fact that Commerce Secretary Howard Lutnick helped build the largest existing coin, Tether.
But there is another factor. Trump’s team believes Stablecoins are more, less – a secret weapon to promote dollarization. “That’s very good for us,” people say. This is because, like the 20th century Eurodollar market, 21st century stubcoins allow trade in offshore dollars without troubling onshore regulations. This appeals to many investors who are tackling geopolitical risks (even if unlike Eurodler, the term coin does not pay a return).
In fact, the current market capitalization of Stubcoins (approximately $2200 billion) remains short of EuroDollars.
However, the key points are: It’s not just tariffs and tanks that are important, as Trump is trying to reshape or destroy the post-war geopolitical order. The same goes for financial plumbing. As Atlantic Council points out, these early battles over the CBDC and Stablecoins can “take the central stage this year.” Does anyone know how to parse MBridge in Chinese?
gillian.tett@ft.com
