Article · AI in Banking

A New Era in Cross-Border Payments

Dato Arif Siddiqui · 28 Jun 2024

Saudi Arabia's participation in the mBridge initiative marks a significant development. This move underscores Riyadh’s strengthening relationship with China, given Beijing’s pivotal role in the project. Additionally, it enhances the credibility of mBridge, given Saudi Arabia's stature as a major oil exporter. The Kingdom holds about 17% of the world’s petroleum reserves and is among the largest net exporters of petroleum.

According to the kingdom's General Authority for Statistics, Saudi Arabia's exports to China reached $6.24 billion in April 2022, making up 17% of its total exports. On the import side, China led with $2.93 billion worth of goods to Saudi Arabia, accounting for 19.8% of Saudi’s total imports. By August 2022, these numbers had increased, with China exporting $3.19 billion and importing $7.86 billion from Saudi Arabia. Between August 2021 and August 2022, China’s exports to Saudi Arabia rose by $663 million (26.3%), from $2.52 billion to $3.19 billion, while imports surged by $2.36 billion from $5.5 billion to $7.86 billion.

The Gulf Research Center highlights that Saudi Arabia is China’s top crude oil supplier globally and its largest trading partner in the Middle East and North Africa. Additionally, China is Riyadh’s primary trading partner and crude oil customer, and key investor in the Saudi Vision 2030 economic diversification project.

With Saudi Arabia joining mBridge, there is potential for the platform to be used increasingly for commodity settlements that bypass the U.S. dollar. In November 2023, the People's Bank of China and the Saudi Central Bank signed a local currency swap agreement worth RMB 50 billion ($6.9 billion). Although Chinese President Xi Jinping indicated in December 2022 that Beijing would work to buy oil and gas in renminbi. India has already bought oil from Russia in rupees and might continue or start using mBridge as both countries are part of the initiative. Iran has an agreement with China to sell oil in renminbi or gold on the Shanghai Stock Exchange.

The Role of mBridge and MVP in Transforming Cross-Border Payments

China, with its extensive experience in digital payments, is likely to see significant involvement from its companies in mBridge. On June 18, Tencent announced its participation in mBridge since September 2023 and its current involvement in validating cross-border payment use cases at the MVP stage. Tencent aims to enhance the quality of cross-border clearing and settlement services.

Tencent views mBridge as an opportunity to boost its global cross-border payments service, Tenpay Global, which currently has a smaller footprint than Ant Group’s Alipay+. According to Royal Chen, Vice President of Tencent Financial Technology, Tenpay Global provides a validation use case based on cross-border e-commerce export trade payment collection for Project mBridge at the MVP stage. This has enabled Tencent to successfully complete cross-border fund settlements at various mBridge nodes, demonstrating significant advantages in both the efficiency and cost-effectiveness of cross-border payments.

mBridge Participating Countries

As of June 2024, observing members of Project mBridge include: Asian Infrastructure Investment Bank, Bangko Sentral ng Pilipinas, Bank Indonesia, Bank of France, Bank of Israel, Bank of Italy, Bank of Korea, Bank of Namibia, Central Bank of Bahrain, Central Bank of Chile, Central Bank of Egypt, Central Bank of Jordan, Central Bank of Malaysia, Central Bank of Nepal, Central Bank of Norway, Central Bank of the Republic of Türkiye, European Central Bank, International Monetary Fund, Magyar Nemzeti Bank, National Bank of Cambodia, National Bank of Georgia, National Bank of Kazakhstan, New York Innovation Centre, Federal Reserve Bank of New York, Reserve Bank of Australia, South African Reserve Bank, and World Bank.