Hong Kong Central Bank Calls for Deeper Probe into Retail CBDC Benefits

Hong Kong remains in a deliberative phase regarding the potential introduction of an electronic Hong Kong dollar (e-HKD), as indicated in the recent report. The Hong Kong Monetary Authority (HKMA) has acknowledged the potential value addition that a retail central bank digital currency (CBDC) could bring to the payments landscape, potentially enabling novel forms of economic transactions. However, the HKMA emphasizes the need for a comprehensive investigation and evaluation to ascertain the viability of implementing this on a large-scale in real-world applications.

As outlined in a report released after the completion of phase 1 of the pilot program, the HKMA has not reached a conclusive decision on the launch of a digital Hong Kong dollar, often referred to as the e-HKD. However, Hong Kong has been demonstrating clear ambitions to establish itself as a hub for virtual assets, evident through the implementation of a revamped regulatory framework in June. Notably, this initiative led to the issuance of the first batch of licenses for cryptocurrency trading platforms in August. The groundwork for this endeavor was laid with the initiation of Project e-HKD in 2021.

The report underscores that the pilot phase unveiled the potential for an e-HKD to deliver significant value in three key domains: programmability, tokenization, and atomic settlement. This innovation holds the promise of enabling swifter, more cost-effective, and more inclusive transactions. Nevertheless, it is important to note that the 14 pilot programs, involving 16 participating entities, were conducted on a small scale within a controlled environment.

The report emphasizes, 

"The potential and prerequisites for realizing such unique value at scale to substantiate the issuance of an e-HKD are subject to market development and further investigation. Minor frictions identified during the pilots could become more apparent or even unacceptable to users in the production environment."

During Phase 1 of the pilot, various aspects were explored, including full-fledged payments, programmable payments, offline payments, tokenized deposits, settlement of Web3 transactions, and the settlement of tokenized assets. Hong Kong is now poised to "explore new use cases for an e-HKD and delve deeper into select pilots." This process will involve comprehending the role of the e-HKD in facilitating innovative methods of transacting goods and services while ensuring financial stability.

The stance of Hong Kong's central bank regarding a retail CBDC appears to be positioned within an ongoing global discourse. In contrast, the U.S. has yet to make any definitive decisions regarding CBDCs, and the topic has become a contentious issue in presidential elections. India, on the other hand, has proceeded with plans for a retail CBDC, while Australia has indicated that its CBDC is likely several years away due to unresolved matters.

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