(Reuters) -The Bank for International Settlements said on Thursday it would quit the cross-border payments platform Project mBridge, raising questions about how the scheme backed by China will evolve at a time of growing geopolitical scrutiny of global transfers.

Project mBridge, a collaboration launched in 2021 between the BIS and the central banks of China, Hong Kong, Thailand and the United Arab Emirates, was joined by the Saudi Arabian central bank in June. It also has many more observing members.

BIS General Manager Agustin Carstens announced the step after being asked whether mBridge could provide a basis for BRICS countries, which include Russia, to get around international sanctions, a notion he rejected.

"The BIS is leaving that project not because it was a failure or not because of political considerations but mostly because we have been involved for four years, and it is at a level where the partners can carry it on by themselves," he said, speaking at a Santander banking conference in Madrid.

"At the same time I have to say that mBridge is not mature enough to start operating. So many, many years need to happen."

The BIS, a global central bank umbrella organisation which oversees the project, said in June that mBridge had reached "minimum viable product" stage.

Addressing the sanctions question, Carstens said: "mBridge is not the BRICS bridge and I have to say that categorically. mBridge was not created to cater (to) the needs of BRICS."

The BIS does not operate with any countries subject to sanctions and this would remain the case, he stressed.

"We need to be observant of sanctions and whatever products we put together should not be a conduit to violate any of these sanctions," added Carstens, a former Mexican central bank chief.

Josh Lipsky at the Atlantic Council think-tank said the BRICS debate showed payment systems have become a geopolitical issue.

The BRICS summit hosted by Russia earlier this month had raised more concerns among Western powers about Putin's cross-border digital currency ambitions, he said.

"If there's even a possibility that mBridge could be helpful to those ambitions the West wants no part of it," Lipsky said.

"But it's fair to ask what the consequences of this decision are. China will surely continue the work, and now the Fed, which is a member of the BIS, will have even less visibility into the project."

(Reporting by Dave Graham and Marc Jones;Editing by Rachel More, Jan Harvey and Helen Popper)