The Hong Kong Monetary Authority (HKMA) has announced a line-up of 16 firms from the financial, payment and technology sectors that it has engaged to run retail central bank digital currency (CBDC) pilots.
The companies – including Alipay, Boston Consulting Group, HSBC, Mastercard and Visa – have been picked to participate in the first round of the e-HKD (e-Hong Kong dollar) ‘pilot programme’. The pilots will investigate potential use cases in six categories: ‘full-fledged’ payments, programmable payments (including government grant disbursement), offline payments, tokenised deposits, settlement of ‘web3’ transactions and settlement of tokenised assets.
Hong Kong has yet to commit to launching a CBDC despite China, of which Hong Kong is a part, driving forward with its e-CNY (‘digital yuan’).
The outcomes and insights gained from each pilot will ‘help enrich the HKMA’s perspective and refine the HKMA’s approach to the possible implementation of e-HKD’, the authority states in its new announcement. The authority is ‘not yet at a point where a firm decision can be made to introduce e-HKD’, it adds.
The pilots are kicking off about eight months after the HKMA revealed that it would be taking what it termed a ‘three-rail’ approach to its CBDC endeavours. Rail one aims to lay the technology and legal foundations for supporting implementation of a Hong Kong CBDC; rail two – of which the pilots are a ‘key component’ – involves the HKMA taking ‘deep dives into use cases as well as application, implementation and design issues relating to e-HKD’; and rail three will consolidate the outcomes of the first two rails for ‘more thorough implementation planning and will set the timeline for launching e-HKD’.
Global Government Fintech lists the 16 companies and use cases at the end of this article
‘More rounds’ of pilots expected
The HKMA organised a kick-off event that saw representatives from the 16 selected firms presenting highlights of their proposed use cases. The authority intends to ‘closely engage’ with the companies in conducting the pilots and monitoring the progress over the coming months.
It states that ‘while the actual outcome and results of the pilots may evolve over time’, it aims to share ‘key learnings’ with the public during Hong Kong FinTech Week 2023. This will take place from 30 October to 5 November.
The HKMA also states that it expects to conduct ‘more rounds’ of pilots alongside the private sector.
The authority is also planning to establish a ‘CBDC expert group’ in order to ‘facilitate collaboration between the government, industry and academia on CBDC research’. It states that the expert group will comprise leading academics from local universities who will ‘contribute valuable insights to support Hong Kong’s future exploration on key policy and technical issues surrounding CBDC, such as privacy protection, cybersecurity and interoperability.’
HKMA chief executive Eddie Yue described the pilot as a “tremendous opportunity for the HKMA to collaborate with the industry in exploring innovative use cases and maximising our readiness for a potential e-HKD”.
In respect of the expert group, he added that “by fostering government-industry-academia collaboration in CBDC research, we aim to ensure the relevance of our research and development efforts, and enable the translation of such outcomes into viable business opportunities.”
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‘Historic’ FX trade in Australia
The HKMA’s CBDC progress bears similarities with explorations being undertaken in Australia, which – like the US, Canada, European Union’s Eurosystem and Bank of England – has also yet to commit to CBDC issuance.
The Reserve Bank of Australia (RBA) announced details in March of what it called ‘transactional pilot’ activity focused on 14 use cases. These include payments in livestock auctions and for construction work, as well as projects focused on offline CBDC payments, and corporate bond and foreign exchange (FX) settlement.
One fintech company involved in one of the eAUD (digital Australian dollar) use-case projects announced last week that it had ‘today [18 May] made financial history by facilitating the first foreign exchange transaction using an Australian CBDC’.
Canvas Digital, which was selected to investigate tokenised FX settlement, said in a press release that the ‘historic’ FX trade involved a transaction between ASX-listed DigitalX and fund manager TAF Capital to trade eAUD to USDC (USD Coin) stablecoin on 17 May. USDC is a digital stablecoin pegged to the US dollar.
“The eAUD, as a CBDC, holds the potential to address crucial challenges in both FX and international remittance markets such as improving transaction times, reducing fees and providing more open access,” said Canvas Digital chief executive David Lavecky.
Hong Kong CBDC pilots: use cases (and providers)
- Alipay Financial Services (HK)
Programmable payments – merchant reward programme - ARTA-Emali HK
Programmable payments – investment - Bank of China (Hong Kong)
Programmable payments – government grant disbursement
Programmable payments – pre-paid services - China Construction Bank (Asia)
Programmable payments – pre-paid services - Fubon Bank (Hong Kong) & Ripple Labs
Settlement of tokenised assets - Giesecke+Devrient & Standard Chartered Bank (Hong Kong)
Offline payments - Hang Seng Bank
Programmable payments – government grant disbursement
Programmable payments – merchant reward programme - Hang Seng Bank & Hongkong and Shanghai Banking Corporation (HSBC) & Visa
Tokenised deposits - ICBC (Asia) [Industrial and Commercial Bank of China]
Offline payments - Mastercard Asia/Pacific
Settlement of ‘Web3’ transactions - Boston Consulting Group & HKT Payment & ZA Bank
Settlement of tokenised assets - Hongkong and Shanghai Banking Corporation (HSBC)
Full-fledged payment
FURTHER READING
Global Government Fintech’s ‘Digital Currencies’ section
Hong Kong plans CBDC pilots in next moves towards potential e-HKD – a news article (22 September 2022) on an HKMA paper, ‘e-HKD: Charting the Next Steps’, in which it set out its ‘three-rail’ approach
Hong Kong and Israel examine CBDC cybersecurity resilience – a news story (20 June 2022) on the HKMA and Bank of Israel teaming up to research the cybersecurity aspects of CBDCs in a project being led by the Bank for International Settlements (BIS) Innovation Hub’s Hong Kong centre
Hong Kong consults on retail central bank digital currency – a news story (27 April 2022) on the HKMA issuing a discussion paper inviting views on policy and design questions surrounding the potential introduction of a retail CBDC
Hong Kong launches “Fintech 2025” vision – a news story (8 June 2021) on a strategy to encourage the financial sector to adopt technology ‘comprehensively’
