Hong Kong Advances Towards Electronic Hong Kong Dollar

Undoubtedly, the COVID-19 pandemic has forced a global technology revolution especially in the financial sector. People nowadays shop more online than before and consider “contactless” not only as more convenient but safer as well.

Not surprisingly, the central banks had to respond to this new trend. The answer is the Central Bank Digital Currency (CBDC) which is a new form of central bank money accessible to the public, accepted as a means of payment, legal tender, safe store of value by all citizens, businesses, and government agencies. Less known fact is that although Central bank digital currencies have been referred to as “the future of payments”, or even “the future of money” but CBDCs are not cryptocurrencies. They are logically quite the opposite – CBDCs are Central Bank Money adopting a digital form unlike cryptocurrencies which end goal is known as DeFi (Decentralised Finance).

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Hong Kong as one of the most important financial hubs is not far behind having its own CBDC. The Hong Kong Monetary Authority (HKMA) is exploring a digital currency called e-HKD that will allow the public to use this form of electronic payment to shop, dine or make money transfers.

Earlier this year, in June, the HKMA announced as a part of the “Fintech 2025” strategy that one strategic direction is to strengthen research work on CBDC with a view to future-proofing Hong Kong in terms of CBDC readiness.

This month, on October 4th, the Hong Kong Monetary Authority (HKMA) released a technical white-paper on retail central bank digital currency (CBDC), titled “e-HKD: A technical perspective”.

Building on the model for retail CBDC that the HKMA is jointly investigating with the Hong Kong Centre of the BIS Innovation Hub, the white-paper explores the potential technical design options for issuing and distributing retail CBDC.

Mr Eddie Yue, Chief Executive of the HKMA, said: “The Whitepaper marks the first step of our technical exploration for the e-HKD. The knowledge gained from this research, together with the experience we acquired from other CBDC projects, would help inform further consideration and deliberation on the technical design of the e-HKD. We also look forward to receiving feedback and suggestions from the academia and industry to enrich our perspectives.”

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In fact, the HKMA began researching CBDC under Project LionRock back in 2017 and in 2019 the HKMA and the Bank of Thailand (BOT) jointly initiated Project Inthanon-LionRock to study the potential of wholesale CBDC for cross-border payments.

After a period of more study, the HKMA should be in a position by mid-next year to decide if it will go ahead with the e-HKD plan, bringing Hong Kong a step closer to becoming a cashless city.

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