Hong Kong Monetary Authority launches digital currency pilot program with 16 companies

Picture for illustration purpose only.

18th May 2023 – (Hong Kong) The Hong Kong Monetary Authority (HKMA) has launched a pilot programme for the e-HKD, a digital version of the local currency. The e-HKD is expected to be a virtual coin that the public can use for shopping, dining out, and making money transfers. The trial run will involve 16 banks and payment companies, which will select small groups of their clients to test six potential uses for the e-HKD, including online payments, payments in shops and restaurants, collecting government payouts, tokenised deposits, tokenised asset settlement, and Web3 trading and clearing. The 16 selected companies include the three note-issuing banks: HSBCStandard CharteredBank of China (Hong Kong), as well as payment service providers Visa and Mastercard, Ant Group, ARTA-Emali, CCB AsiaHang Seng BankICBC AsiaFubon Bank (Hong Kong), and Boston Consulting Group.

The CEO of the HKMA, Eddie Yue, hosted a ceremony to mark the start of the e-HKD pilot programme. According to Howard Lee, deputy CEO of the organisation, the HKMA considers it the right time to explore a digital currency as residents have become more willing to use online banking services in recent years. The e-HKD trial run will be a controlled experimental environment called a sandbox, where the participating companies can test the infrastructure, security, and other operational issues of the digital money.

Howard Lee, Deputy Chief Executive of the HKMA, stated that the development of the e-HKD is not related to the digital yuan trial in mainland China. He also noted that central banks around the world, including in Europe and the United States, are conducting research on central bank digital currencies (CBDCs). Although there is currently no clear use case for the Digital HKD, the HKMA hopes to be prepared to launch it in the future to meet the needs of evolving technology.

Hong Kong’s three note-issuing lenders, HSBC, Standard Chartered Bank, and Bank of China (Hong Kong), will take part in the trial. HSBC, the largest lender in the city, will participate in two pilot projects, testing e-HKD payments on the campus of the Hong Kong University of Science & Technology (HKUST) and simulating tokenised deposit transactions in collaboration with Visa.

Other companies taking part in the e-HKD trial include Alipay Financial Services (HK), China Construction Bank (Asia), Standard CharteredBoston Consulting, and Mastercard Asia. The HKMA will announce the results of the pilot in a report in November, and it has not yet confirmed when the e-HKD will be fully rolled out.

The HKMA is joining many central banks worldwide that have introduced or are considering introducing a virtual currency. The Bahamas was the first to launch a digital coin called the Sand Dollar in October 2020, while mainland China has rolled out a number of pilot schemes for its digital yuan, the e-CNY. Howard Lee said that globally, about 100 central banks are studying digital currency, and Hong Kong needs to do the same as it may need several years to develop a central bank digital currency.

Digital wallets are expected to surpass credit cards as the most popular electronic payment method in Hong Kong by 2025, according to a study by US financial technology company FIS released in March last year. The digital wallets collectively attracted more than 4.7 million new users and 96,000 new merchants in Hong Kong by the end of 2021 as the pandemic encouraged people to shop online.

The e-HKD is just the retail side of Hong Kong’s central bank digital currency (CBDC). On an international level, the HKMA has been working on the “mBridge” project 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 study its use in settling international payments. The PBOC said in September that an mBridge trial running from 15th August to 23rd September saw 20 commercial banks transfer 150 million yuan (US$22 million) across 160 payments, while 80 million yuan of digital fiat was issued on the platform.

The HKMA first mentioned the plan for a centralised digital currency in June 2021 as part of Fintech 2025, its plan to develop financial technologies. The authority issued a white paper in October 2021 and completed a one-month consultation in May last year collecting views about privacy and other concerns surrounding the launch of a digital coin.

The HKMA has also formed a CBDC expert group to promote collaboration among the government, industry, and academia in studying CBDC. The group’s members will consist of top scholars from local universities in computer science, business, and law. The HKMA will regularly contact the members of the expert group to explore major policy and technical issues related to CBDC, such as privacy protection, network security, and interoperability. The members of the expert group will not serve as official advisers or decision-makers.