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The Hong Kong Monetary Authority (HKMA), the de-facto central bank of the city, plans to start pilot projects for the digital Hong Kong dollar later this year. The Hong Kong CBDC (Central Bank Digital Currency) trials come on the heels of China’s plan to issue e-CNY to its citizens.
HKMA’s CEO Eddie Yue Wai-man told South China Morning Post that the agency will launch pilots for e-HKD with banks and technology firms, with an aim to find ‘suitable use cases’ for the digital currency.
Hong Kong CBDC development
Hong Kong has been experimenting with CBDCs since 2017 when it launched Project LionRock in collaboration with Hong Kong Interbank Clearing Ltd and three note-issuing banks. In 2019, HKMA partnered with the Bank of Thailand to study the use of e-HKD for cross-border payments. More recently, HKMA and BOT were joined by the Digital Currency Institute of the People’s Bank of China and the Central Bank of the United Arab Emirates, and the project was renamed as mBridge.
While the wholesale CBDC has seen ample research, HKMA’s experiment with the retail use of e-HKD began in 2021. The agency first released a technical whitepaper on e-HKD, then published a discussion paper in April 2022 inviting views from industry players, and earlier this month set out its policy stance and the outline for next steps.
“Overall, the respondents are supportive of the e-HKD initiative and believe that e-HKD has the potential to make payments more effective while supporting the digital economy,” said HKMA.
China, on the other hand, is leading the CBDC race in Asia as well as around the world, with e-CNY having 260 million users as of January. Beijing is testing the digital currency in certain provinces and is integrating e-CNY with incumbent mobile payments applications such as Alipay and WeChat Pay.
Hong Kong citizens are already using digital payment platforms such as Alipay, WeChat Pay, Octopus and Tap & Go, among several others. However, the e-HKD will function as a digital form of fiat currency that can be used for digital transactions.
Additionally, HKMA has said that the issuance of e-HKD will not conflict with the businesses of the three note-issuing banks, namely, HSBC, Standard Chartered and Bank of China.
“We are leaning towards a two-layer system, meaning that the HKMA will be the issuing authority for the Central Bank Digital Currency, but it will be distributed by different banks,” Yue tells SCMP.
On the other hand, China has been testing digital yuan in Hong Kong for interoperability with the Faster Payment System (FPS)— a local payment system connecting banks and digital wallet operators. “So conceivably, one day in the future e-CNY and e-HKD will coexist the same way that some people in the city carry different types of currencies in their wallet,” says Yue.
“CBDC developments in China and Hong Kong SAR are both motivated by a fast-growing digital economy and a strong desire by the general public to further improve payment efficiency and to future-proof the payment systems,” says the International Monetary Fund in recently published research on CBDCs.
