In a recent report published by the Hong Kong Monetary Authority (HKMA), the regulatory body has announced its intention to establish the groundwork for the implementation of a retail central bank digital currency (CBDC) known as the “e-HKD.” The move comes after extensive research, market consultations, and a pilot plan involving industry stakeholders, signaling the increasing significance of CBDCs in the global financial landscape.
The HKMA’s comprehensive study and valuable feedback from two rounds of market consultation have persuaded the authority of the necessity to begin paving the way for the potential implementation of a retail CBDC. The report emphasizes the HKMA’s commitment to laying the foundations and conducting in-depth studies and pilots on the implementation and application of the e-HKD.
While the e-HKD may not have an immediate role in the current retail payment market, the report acknowledges the rapid evolution of the digital economy and anticipates the emergence of prospective use cases for the digital currency. By exploring innovative solutions and keeping pace with technological advancements, the HKMA aims to maintain financial system stability and meet the evolving needs of the digital era.
Respondents in the HKMA’s study had proposed the exploration of blockchain solutions for the e-HKD. While the regulator acknowledged this suggestion, it will consider various factors, including policy objectives and measures adopted by other jurisdictions, to explore technically feasible solutions.
The HKMA’s “Digital Hong Kong Dollar” pilot plan was first introduced in May 2022 and involved 16 carefully selected companies from the financial, payment, and technology sectors. These companies embarked on trials encompassing various categories such as full payment, programmable payment, offline payment, tokenized deposit, third-generation Internet (Web3) transaction settlement, and generation of currency assets. This pilot plan represents a crucial step in the HKMA’s approach towards a potential launch of the e-HKD, allowing for practical experience and the exploration of innovative use cases.
They recently conducted an experiment called Project Aurum which demonstrated the compatibility of private stablecoins alongside CBDCs. The Aurum prototype showcased groundbreaking achievements, expediting the search for an ideal retail CBDC architecture. This experimentation is of particular significance as it mirrors the way individuals currently utilize private stablecoins in their everyday transactions, akin to modern card payments that rely on commercial bank money backed by central bank guarantees.
As the HKMA begins laying the foundation for the retail CBDC, the financial industry eagerly awaits further developments and potential collaborations. The practical experience gained from ongoing trials will be shared with the public during Hong Kong Financial Technology Week 2023, fostering refinement and additional rounds of testing. The implementation of a retail CBDC in Hong Kong has the potential to revolutionize the financial landscape, providing secure and efficient digital transactions for individuals and businesses alike.
The global interest in CBDCs continues to surge, with over 100 countries considering the issuance of their own digital currencies. Trials and experiments are taking place worldwide, frequently involving service intermediaries such as banks or payment providers. The HKMA’s commitment to researching and testing CBDCs positions Hong Kong at the forefront of digital innovation in the financial sector.