Hong Kong expands e-HKD; Canada, Australia abandon retail CBDCs

Hong Kong has launched the second phase of its central bank digital currency (CBDC) pilot, expanding it beyond a retail Hong Kong dollar to encompass tokenized deposits. Elsewhere, Canada and Australia are shifting from retail CBDCs, with the former exiting the sector altogether while the latter turns its attention to a wholesale CBDC.

Hong Kong launches e-HKD+

This week, the Hong Kong Monetary Authority (HKMA) launched Phase 2 of its CBDC project, expanding it beyond the digital Hong Kong dollar (e-HKD) to incorporate tokenized deposits.

The HKMA rolled out the first CBDC pilot in May 2023, recruiting 16 global firms, including Visa (NASDAQ: V) and HSBC (NASDAQ: HSBC). The first phase focused on programmable and offline payments and settlements of tokenized assets. However, it didn’t commit to issuing the CBDC to retail users, a point that chief executive Eddie Yue has continuously hammered home.

As it launches Phase 2, HKMA is now approaching the project as an all-encompassing digital money ecosystem, renaming it to e-HKD+.

The expanded pilot will explore the settlement of tokenized assets, programmability and offline payments. Under tokenized assets, the HKMA has recruited Hang Seng Bank (NASDAQ: HSNGF) and the Boston Consulting Group to examine the settlement of tokenized funds using digital money on a public blockchain, while HSBC will delve into the use of permissioned blockchains.

Under programmability, the HKMA has recruited foreign banks, including the Bank of China (NASDAQ: BACHY), Singapore’s DBS and the China Construction Bank (NASDAQ: CICHY). They will assess the use of smart contracts in dedicated fund mechanisms and prepayment instances. DBS, in particular, will test the use of digital money to enable a scalable Environmental, Social and Governance (ESG) reward platform.

The Bank of Communications and China Mobile have joined the pilot to delve into the use of a CBDC stored in a mobile SIM card for offline payments.

“Project e-HKD+ signifies the HKMA’s commitment to digital money innovation. The HKMA will continue to adopt a use-case-driven approach in its exploration of digital money.  We look forward to working closely with industry participants in Phase 2 to co-create various innovative use cases,” commented Yue.

HKMA says that the outcome of the second phase of the CBDC pilot will inform its design, implementation and operation choices for a digital money ecosystem that houses both public and private money.

To accelerate development for the participating firms, the central bank intends to launch an e-HKD+ sandbox. This will be a separate project from the existing stablecoin sandbox, which it launched a month ago, and whose participants include Standard Chartered (NASDAQ: SCBFF) and Chinese online retailer JD.com (NASDAQ: JD).

Canada, Australia shift from retail CBDCs

Elsewhere, some leading economies have announced a shift away from retail CBDCs. Canada’s central bank is scaling down its CBDC work to focus on the broader payments ecosystem, while Australia is turning its attention to a wholesale digital currency.

Announcing the shift, the Bank of Canada said it’s “scaling down its work on a retail central bank digital currency and shifting its focus to broader payments system research and policy development.”

The bank didn’t explicitly reveal whether it had abandoned its CBDC work altogether, which has been ongoing since 2017. However, the nation’s public broadcaster, CBC, reported that the retail digital Loonie had been abandoned.

Bank of Canada pledged to “continue to monitor global retail CBDC developments and publish some related research.” However, its focus will primarily be on ensuring Canadians have access to cost-effective, efficient, fast and secure payments.

Australia has also announced a shift from a retail AUD. Speaking at a recent event, Reserve Bank of Australia’s (RBA) assistant governor Brad Jones revealed that the central bank believes there’s more value in a wholesale digital currency.

“…I can confirm that the RBA is making a strategic commitment to prioritise its work agenda on wholesale digital money and infrastructure – including wholesale CBDC – rather than retail CBDC,” Jones told attendees of the Intersekt Conference in Melbourne.

The RBA believes that a retail CBDC poses more problematic challenges and its impact on the Australian economy isn’t as promising. A wholesale CBDC would be more of an evolution than a revolution, making it easier to transition for the commercial banks and payments firms, Jones added.

The shift by Canada and Australia aligns with a broader trend globally away from retail CBDCs. In recent months, central banks in Italy, Germany, Taiwan and England have all expanded wholesale CBDC projects at the expense of retail alternatives.

A June report by the Bank for International Settlements (BIS) also confirmed this shift, revealing that while 81% of advanced economies ran pilots on wholesale CBDCs, only 27% explored retail CBDCs.

Watch: CBDCs are more than just digital money