Beyond borders: A digital blueprint for the region

EVERY day, the pulse of Asean’s economy beats through millions of transactions. A Malaysian entrepreneur imports furniture from China, a café in Thailand imports coffee beans from Vietnam, a Malaysian oil and gas firm exports refined petroleum to Singapore, people buy an array of goods from sellers in China, and not forgetting the significant population of migrant workers who remit funds to support their families.

This vibrant exchange is the lifeblood of our regional prosperity. Yet beneath this bustling surface lies a hidden friction – a "tax" of time, cost and complexity.

Anyone who has sent money abroad is familiar with the process, which almost always relies on the global SWIFT (Society for Worldwide Interbank Financial Telecommunication) network.

Behind this well-known system lies a complex web of correspondent banks, which is the real source of the friction.

Once an international transfer is initiated, SWIFT messages instruct it to hop between these intermediary banks, each adding fees and days to the journey, making international transfer slow and expensive.

For the small and medium enterprises (SMEs) that form the backbone of most economies in Asean, these hurdles can be a significant barrier to growth. In an age of instant information, it is perplexing that our financial systems still operate on a timeline of days, not seconds.

For the delays and high costs plaguing international trade and the growth of SMEs, the solution emerging from several central banks offers a near-panacea.

Central bank digital currency (CBDC) is a digital form of a country’s official currency, issued and fully backed by its central bank, like Bank Negara Malaysia. While the idea of multiple countries using CBDCs to perform cross-border transactions may sound futuristic, the groundwork is already being laid by a coalition of forward-thinking nations.

Notably, the groundbreaking project known as mBridge, co-founded by the central banks of China, Hong Kong, Thailand and the United Arab Emirates, alongside the Bank for International Settlements (BIS), has already provided a glimpse of this future "landscape".

While Project Dunbar, of which Malaysia is part, proved the concept was possible, mBridge has taken the critical next step into reality. The platform has already processed real-value transactions in a successful pilot with 20 commercial banks and was elevated to a "minimum viable product" (MVP) in mid-2024, underscoring its potential to facilitate quick, low-cost cross-border payments.

These successful projects prove the technology works. What, then, is the next step? The latest consolidated data from the Asean Secretariat shows that in 2024, the total value of merchandise trade in the region was valued at about US$3.5 trillion (RM14.79 trillion), of which 21.5% was trade within the region.

Meanwhile, data from the China International Import Expo shows that in the first 10 months of 2024, bilateral trade between China and Asean stood at US$798bil (RM3.372 trillion).

While the Regional Comprehensive Economic Partnership (RCEP) laid the groundwork for an integrated Asia by dismantling many traditional trade barriers, the friction of slow and costly cross-border payments remains a significant bottleneck.

Given the immense volume of trade between Asean and China, the core of the RCEP bloc, a digital payment corridor connecting members of RCEP is not just something that is nice to have, but a strategic necessity.

Imagine a multi-CBDC platform connecting the economic powerhouses of RCEP members; it would not be a mere upgrade but rather a fundamental reimagining of how the region trades and prospers, creating a truly seamless trading bloc.

Cognisant of the complex geopolitics and great power competition, proposing a new financial architecture may raise concerns about sovereignty and over-reliance on a single power.

The greatest hurdle for such an ambitious project is not technological, but one of trust.

Widespread adoption relies on a firm belief in shared benefit, yet valid concerns over data sovereignty, surveillance and fairness could hinder participation.

Therefore, the blueprint for a digital payment corridor for RCEP members ought to be designed on three core principles.

First, there must be neutral governance to ensure that no single nation dominates. This may be done by having this CBDC payment platform overseen by an impartial body like the BIS.

Second, the purpose of this platform must be rooted in economic practicality to lubricate trade, not political alignment.

Finally, the platform must be designed with interoperability in mind.

Instead of seeking to replace existing global systems like SWIFT, the platform would create a complementary and highly efficient new "highway" for regional trade, allowing greater resilience, flexibility and more options in an unpredictable global landscape.

For the region, embracing a CBDC payment blueprint would be transformative, with benefits to be cascaded through every Asean economy, subsequently empowering SMEs and boosting the global competitiveness of major industries.

More importantly, this is a path towards greater economic sovereignty whereby the platform would reduce the region’s vulnerability to external shocks and forge its own identity.

With pioneering experience from various digital finance projects, Asean and China have the credibility and vision to initiate a conversation to discuss the potential of a CBDC payment platform for RCEP members.

By championing the blueprint, the region could emerge as a key architect of Asia’s future. In this partnership, with China as an indispensable economic anchor, a more integrated, prosperous and self-determined region can be woven together.

Let the borders on the maps remain, but the ones hindering our shared prosperity be erased.

Dr Liew Ping Xin is an Assistant Professor at Xiamen University Malaysia. The views expressed here are entirely the writer’s own.

The SEARCH Scholar Series is a social responsibility programme jointly organised by the South-East Asia Research Centre for Humanities (SEARCH) and Tunku Abdul Rahman University of Management and Technology (TAR UMT).