Gold Rush: How mBridge Nations Are Boosting Reserves and Fueling Price Surges
The comments below are an edited and abridged synopsis of an article by Jan Nieuwenhuijs
Countries involved in the new cross-border payment system mBridge have been aggressively accumulating gold, significantly contributing to the bull market that has persisted over the past two years. While it’s hard to predict exactly when the global dollar standard will collapse, these nations’ strategic efforts to establish a non-dollar payments system and stockpile gold in place of U.S. Treasuries signal a clear intent to de-dollarize.
What is mBridge?
mBridge is an international payment project initiated by the Bank for International Settlements (BIS) Innovation Hub in Hong Kong in 2021. It aims to create a multi-central bank digital currency platform that leverages distributed ledger technology (DLT) to enable instant cross-border payments between central and commercial banks. The system is Ethereum-compatible and overseen by China’s Digital Currency Research Institute, making it immune to Western sanctions. The current full members include China[LL2] , Thailand, Hong Kong, Saudi Arabia, and the U.A.E., with over 30 other countries observing the project.
The goal of mBridge is to improve the existing cross-border payment system, making transactions faster, cheaper, and more efficient. By reaching the Minimum Viable Product (MVP) stage in June 2024, mBridge is set to become operational soon, allowing countries to bypass traditional correspondent banking networks.
Gold Hoarding and mBridge
Countries like China, Saudi Arabia, Thailand, and Hong Kong, all of which are full mBridge members, have dramatically increased their gold reserves since early 2022. This collective move has shifted the gold market’s dynamics, with these nations no longer sensitive to price changes. Instead of selling into rallies, they are the driving force behind those rallies, fueling the bull market with their insatiable demand for gold.
This trend is reflective of a broader strategy: replacing U.S. Treasuries with gold as a safer store of value. Since the freezing of part of Russia’s foreign exchange reserves by the West, countries like China and Saudi Arabia have been aggressively buying gold to reduce their reliance on dollar-denominated assets. This marks a significant shift in how these nations manage their wealth, moving away from the dollar and toward hard assets.
The De-Dollarization Strategy
For many nations, breaking free from the dollar’s dominance in global trade is challenging, as liquidity in local currencies is often poor and payment infrastructures are incompatible. However, mBridge provides a solution by connecting central banks to create a settlement layer for digital currencies, supporting interoperability between countries. This system could pave the way for more widespread use of local currencies in international trade.
For example, China and Saudi Arabia signed a currency swap agreement in November 2023, allowing them to trade using their local currencies rather than dollars. Saudi Arabia has also expressed interest in settling crude oil transactions in the Chinese yuan. Similarly, the U.A.E. has begun using mBridge to settle cross-border payments with China, demonstrating the system’s growing influence.
The Rise of Gold and the Decline of the Dollar
The impact of this shift is clear. Gold now accounts for 19% of international reserves, up from 10% in 2014, while the dollar’s share has fallen from 62% in 2001 to 48% in 2024. As geopolitical tensions continue and mBridge becomes fully operational, the role of the dollar in global trade is likely to shrink further.
While the dollar’s fall won’t happen overnight, the combination of mBridge and the increasing reliance on gold signals a major transformation in global finance. This trend will continue to reshape the international monetary system in the years to come.