Hong Kong initiates CBDC pilot

Hong Kong CBDC

The Hong Kong Monetary Authority (HKMA) has officially kicked off its e-HKD Pilot Programme, an initiative working through use cases across several areas of implementation relating to central bank digital currency (CBDC).

Sixteen firms within the financial, technology and payments sectors have been selected by the central bank to contribute to the first round of pilots in 2023 and develop use cases across full-fledged payments, programmable payments, offline payments, tokenised deposits, settlement of Web3 transactions and settlement of tokenised assets.

The firms are Alipay Financial Services Limited, ARTA-Emali HK Limited, Bank of China (Hong Kong), China Construction Bank (Asia), Fubon Bank (Hong Kong), Ripple Labs, Giesecke+Devrient, Standard Chartered Bank (Hong Kong), Hang Seng Bank, The Hongkong and Shanghai Banking Corporation, Visa, Industrial and Commercial Bank of China (Asia), Mastercard Asia/Pacific, The Boston Consulting Group, HKT Payment Limited and ZA Bank.

The e-HKD programme forms part of the nation’s Fintech 2025 strategy that established three “rails” to approach CBDC development:

  • “Rail 1 aims to lay the technology and legal foundations for supporting the implementation of e-HKD. Specifically, a plan will be formulated for developing the wholesale layer of the two-tier e-HKD system. In addition, the HKMA will identify and examine areas to prepare for legislative amendments, with a view to enabling the issuance of a digital form of fiat currency with legal tender status in Hong Kong.
  • Under Rail 2, which will run in parallel to Rail 1, the HKMA will take deep dives into use cases as well as application, implementation, and design issues relating to e-HKD. It will also conduct a series of pilots in close collaboration with various stakeholders to gain actual experience.
  • Rail 3 is concerned with launching e-HKD. It will consolidate the outcomes of Rail 1 and Rail 2 for more thorough implementation planning, and will set the timeline for launching e-HKD. The progress of Rail 3 will depend on the actual progress made under Rail 1 and Rail 2, as well as the pace of relevant local and international market development.”

“While the HKMA has not yet made a decision on whether and when to introduce e-HKD, we are excited to kick-start the e-HKD Pilot Programme, which serves 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,” Eddie Yue, Chief Executive of the HKMA, said.

“We appreciate the industry’s active participation in the pilots and look forward to the results. We are also pleased to have many experts in the academia joining forces with us on this CBDC journey.

“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.”

The HKMA said it would likely be in a position to share the progress and key learnings at the time at Hong Kong FinTech Week 2023 from 30 October to 5 November, with further pilot rounds expected with other industry partners in the future.

“The Asia Pacific region has many forward-looking regulators such as the HKMA, who are looking to leverage the capabilities of blockchain and crypto technology. It’s a huge honour for Ripple to be one of the select few organisations participating in the HKMA’s e-HKD Pilot Programme,” James Wallis, Ripple’s Vice President of Central Bank Engagements & CBDCs, said.

“We now have the opportunity to demonstrate how real estate asset tokenisation could be brought to the citizens of Hong Kong, and are confident that our fully integrated solution will be an industry-first use case demonstrating the power of leveraging a CBDC for real estate equity asset release.”