Choosing the CBDC Path: Between mBridge and SWIFT, Which Holds More Promise for Developing Countries?

The rapid digital transformation has led to the emergence of innovative initiatives like mBridge and the SWIFT CBDC project, both aiming to revolutionize cross-border transactions.

The rapid digital transformation has led to the emergence of innovative initiatives like mBridge and the SWIFT CBDC project, both aiming to revolutionize cross-border transactions. These projects respond to major challenges in the global financial system, such as slow international payment processes, high transaction costs, and high security risks. By adopting Central Bank Digital Currency (CBDC) technology, both initiatives strive to accelerate payments, reduce costs, and enhance security, offering significant benefits to developing countries. According to a November 2023 report from the Atlantic Council CBDC tracker, 60% of the 108 countries exploring CBDCs are developing nations, potentially strengthening their monetary sovereignty and expanding financial access to previously underserved populations.

mBridge, in close collaboration with various central banks, offers a dedicated platform that facilitates cross-border transactions using CBDCs, promising increased efficiency and reduced costs. This makes it an attractive option for developing countries seeking more effective international payment solutions. Conversely, the SWIFT CBDC project leverages existing infrastructure and a proven reputation in providing secure financial messaging services. Its focus on interoperability between CBDC networks and traditional payment systems offers a seamless transition to a new digital financial era. With infrastructure that is already recognized and trusted by global financial institutions, SWIFT promises easier integration into the global financial ecosystem. Both initiatives, each with its unique strengths, open opportunities for developing countries to actively engage in the global digital economy securely, quickly, and efficiently.

mBridge vs. SWIFT: An Analysis

Both the mBridge project and the SWIFT initiative in CBDC development offer innovative approaches to cross-border financial transactions, including crucial aspects like remittance transfers by foreign workers from developing countries. With global remittances to developing countries reaching an impressive $589 billion in 2022, according to the World Bank Migration and Development Brief from April 2022, the importance of efficient solutions for such fund flows is undeniable. mBridge promises ease of cross-border transactions with CBDCs, prioritizing the simplification of international payment processes that can offer faster and more economical money transfer methods for foreign workers. This is relevant considering India, China, Mexico, the Philippines, and Vietnam are the largest recipients, while the United States, Saudi Arabia, the United Arab Emirates, Germany, and Kuwait are the major sending countries.

On the other hand, SWIFT, with its established global infrastructure, aims to achieve interoperability between CBDC networks and traditional payment systems, promising seamless integration between the digital and conventional financial sectors. However, challenges such as complexity and the need for more mature infrastructure could hinder the implementation of this initiative in some developing countries. Security and compliance with anti-money laundering regulations also remain a priority, given the importance of keeping transactions safe and in accordance with international legal standards. Therefore, mBridge, with its focus on efficiency and accessibility, may be more appealing to foreign workers from developing countries in need of efficient money transfer solutions. Yet, the widespread adoption success depends on the infrastructure of developing countries and both projects’ ability to meet strict security and compliance standards. SWIFT, with its global network and experience, also has the potential to play a crucial role in the remittance ecosystem, especially in facilitating integration between new financial innovations and traditional payment systems.

Geopolitical Factors and the Presence of BRICS

Geopolitics plays a crucial role in the context of Central Bank Digital Currency (CBDC) adoption, especially for developing countries striving to achieve independence from the dominant Western financial system. Initiatives like mBridge, which receives significant support from several BRICS countries, offer a promising alternative towards this end. Based in Hong Kong and initiated by the Central Bank of the United Arab Emirates (CBUAE) and the Digital Currency Institute of the People’s Bank of China (PBC DCI)—both institutions closely linked with BRICS members—mBridge positions itself as a catalyst for more intensive South-South cooperation through the adoption of CBDCs.

The IMF World Economic Outlook in April 2023 estimated that the combined economic contribution of BRICS countries would reach 23% of the total global economy that year. With its expansion in early 2024 to include Egypt, Iran, Saudi Arabia, the United Arab Emirates (UAE), and Ethiopia, BRICS has extended its influence as a primary platform for developing market economies. The direct involvement of BRICS member countries in initiatives like mBridge not only affirms their stance in promoting innovative digital financial solutions but also strengthens the ability of developing countries to be more self-reliant within the global financial system.

The support from BRICS members, particularly China and the United Arab Emirates, pioneers in the development of mBridge, provides momentum for this initiative to be more widely accepted among developing countries. This not only offers a path towards efficient cross-country transactions through CBDCs but also opens opportunities for closer economic and financial cooperation among Southern countries. Thus, mBridge could become a key pillar in encouraging CBDC adoption as a tool for enhancing monetary and economic sovereignty in developing countries, in line with the geopolitical aspirations and interests of BRICS members.

Toward a Decision

From the analysis above, mBridge indeed stands out as an attractive choice for developing countries, especially due to its capability to support economic sovereignty, facilitate integration with existing financial infrastructure, and garner geopolitical support from BRICS countries. However, this does not diminish the value and importance of the SWIFT project, which, with its focus on interoperability and a long track record in the global payment system, provides a solid foundation for countries preparing to transition to more advanced and complex technologies.

Given the diversity of needs and aspirations of each country, it’s possible for developing nations to adopt both systems to meet different objectives. The SWIFT project could continue to be used for corporate transactions and between traditional financial institutions, given its established system and trust among many global entities. The reliability and security offered by SWIFT make it a stable choice for large-scale financial transactions requiring high integrity.

On the other hand, mBridge, with its innovation and flexibility, could be particularly suited to fostering new financial innovations, supporting the development of fintech, and peer-to-peer (P2P) remittance systems. mBridge’s ability to facilitate efficient and economical CBDC transactions makes it a potentially revolutionary tool for expanding financial inclusion and supporting smaller, more frequent cross-border transactions, such as remittances sent by migrant workers to their home countries.

Thus, developing countries could benefit from an integrated approach, where SWIFT and mBridge function complementarily, each serving different market segments. This allows them to leverage the specific strengths and advantages of both systems: SWIFT for maintaining stability and trust in large-scale financial transactions and mBridge for accelerating innovation and expanding financial access through CBDC technology.

In this context, the decision by developing countries to adopt one or both systems will not only determine the future direction of their digital finance but also how they navigate changes in the global economic dynamics, ensuring that they can capitalize on new opportunities while maintaining the stability and security of their financial systems.

Tuhu Nugraha
Tuhu Nugraha
Digital Business & Metaverse Expert Principal of Indonesia Applied Economy & Regulatory Network (IADERN)