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The Hong Kong Monetary Authority (HKMA) has decided to focus development of the e-HKD on wholesale applications because the central bank digital currency (CBDC) has stronger potential value in large transactions than in daily retail use. The city’s de facto central bank announced the decision on Tuesday after a second phase of e-HKD trials that tested its usability and efficiency in both retail and wholesale scenarios over the past year. A CBDC is a digital version of a fiat currency built using blockchain technology. The e-HKD “is not the only single instrument that can be used [in retail cases],” said Howard Lee Tat-chi, deputy chief executive of the HKMA, at a media briefing. Merchants and individuals could use programmable deposits and perhaps stablecoins for transactions, he said, adding that a specific role for the e-HKD was “not very apparent”. However, the digital currency was “free of credit risks and hence desirable to be used by financial institutions in large-valued transactions,” he said. Financial institutions had used the e-HKD for wholesale interbank cross-border settlement and securities transactions, Lee said. The authority said it hoped to attract more large financial institutions and companies to join future e-HKD pilot projects. The HKMA did not give a concrete timeline on when the e-HKD would be applied at the wholesale level. The roll-out would depend on “the movement of advanced technology” and the different use cases that develop, as well as “the attitude of users towards central bank digital money”, Lee said. “We are encouraged to see that the e-HKD has gradually been used in more wholesale applications by financial institutions,” said Eddie Yue, chief executive of the HKMA, in a statement. “We will continue to ensure Hong Kong is well prepared for the potential future extension of the e-HKD in retail scenarios.” The HKMA looked forward to continuing its close partnership with the industry on its “CBDC and tokenisation journey”, he added. The second phase of trials, which compared e-HKD with other payment methods and tokenised deposits, found that both e-HKD and tokenised deposits could deliver similar benefits by enabling cost-efficient, programmable and resilient transactions in retail cases, the HKMA said. The e-HKD and tokenised deposits were perceived similarly by the public, given the high level of trust in Hong Kong’s stable banking system, thanks to its robust supervisory regime and strong consumer protections, Lee said. Before moving to real applications of e-HKD in retail cases, the HKMA is preparing and testing common token standards. This preparatory work was expected to be complete by the first half of next year, but a specific timetable for implementation would depend on market demand, international developments and technology evolution, the HKMA said. Under the second-phase trials, 11 companies conducted studies on the settlement of tokenised assets, programmability and offline payments. Participants included Bank of Communications (Hong Kong), China Mobile, BlackRock, DBS, ICBC (Asia), HSBC and Hang Seng Bank. During the initial phase of the e-HKD pilot programme, which wrapped up in October 2023, the HKMA explored applications in cross-border payment settlement via the mBridge project with the People’s Bank of China, the central banks of Thailand and the United Arab Emirates, and the BIS Innovation Hub Hong Kong Centre.
