In June 2021, the HKMA introduced the idea of a centralised digital currency as a component of its Fintech 2025 initiative, aimed at fostering financial technology advancements.
In October 2021, the authority published a white paper, followed by a month-long consultation in May of the subsequent year to gather feedback on issues related to privacy and other considerations concerning the introduction of a digital coin.
By 2021, the digital wallets Alipay, WeChat Pay, Tap & Go, and Octopus saw an influx of over 4.7 million fresh users and 96,000 additional merchants in Hong Kong, spurred by the pandemic’s impetus for online shopping.
Globally, the HKMA has collaborated on the “mBridge” initiative with the People’s Bank of China (PBOC), the central banks of Thailand and the United Arab Emirates, and the Bank for International Settlements (BIS) Innovation Hub Hong Kong Centre to explore its application in facilitating international payments.
Completion of Phase 1 Pilot Initiative
The program’s primary objective was to assess the possible advantages and disadvantages of implementing a Central Bank Digital Currency (CBDC) represented by a digital Hong Kong Dollar, commonly known as e-HKD.
The report emphasises three key areas where an e-HKD could enhance the payment system: programmability, tokenisation, and atomic settlement.
The HKMA has expressed optimism about the adoption of e-HKD.
In a press release issued on 30 October, Mr Eddie Yue, Chief Executive of the HKMA, said:
“Phase 1 of the e-HKD Pilot Programme has examined many innovative use cases of an e-HKD and has provided valuable insight to the HKMA on how an e-HKD can potentially add tangible value to businesses and consumers. These pilots have also raised a number of areas for future study. We thank all participating firms for their strong interest in the programme, and look forward to continuing our close partnership with the industry in our exploration of central bank digital currencies.”
Tokenisation has the potential to disrupt traditional markets by providing asset owners with increased liquidity, efficiency, and transparency.
Moreover, atomic settlements could transform the final stage of payment processing by ensuring instantaneous and definitive transactions.
During the pilot phase, the HKMA experimented with the use of Distributed Ledger Technology (DLT), but it also remains open to non-DLT based designs.
Hong Kong CBDC Future
As Hong Kong continues to study the implications and potential benefits of a digital Hong Kong Dollar (e-HKD), the future of CBDCs in the country remains a topic of extensive discussion.
With the Hong Kong Monetary Authority (HKMA) emphasising the importance of maintaining a cautious yet proactive stance, stakeholders are eagerly anticipating further developments in this area.
The potential impact of a digital currency on the local and global financial ecosystems, along with its implications for economic transactions, remains a key focal point in the ongoing discourse.