China is one step closer to achieving its dreams for cross-border functionalities for its central bank digital currency (CBDC) following a plan to trial its usage in Hong Kong.
Beginning on July 18, Chinese tourists will be allowed to use the digital yuan to pay for goods and services across select stores in Hong Kong. The move follows the launch of a digital yuan shopping festival organized by the Bank of China (Hong Kong) Limited (BOCHK) to promote the international usage of the CBDC.
During the festival, 200 stores across Hong Kong have indicated a readiness to accept the digital yuan from Chinese tourists. The stores include all 90 local supermarket brand U Select outlets, pharmacies, restaurants, and electronic shops in Hong Kong.
BOCHK’s deputy general manager of digital currency, Chen Guang, stated that the festival aims to complete two key objectives. The first is boosting local consumption and the tourism sector, while the second aim is the introduction of the digital yuan in Hong Kong on a broader scale.
Previous attempts to introduce the digital yuan into Hong Kong have not gone according to plan. In March, a hard launch of the CBDC in Hong Kong recorded dismal results despite a 20% discount on purchases across 1,400 stores to attract users.
Guang believes that the “cross-border shopping festival” will record improved adoption rates for the digital yuan as it coincides with a spike in the influx of tourists from Mainland China.
BOCHK was roped in by the People’s Bank of China (PBoC) to experiment with the cross-border functionality of the CBDC in Hong Kong in 2022. The first stage of the study saw BOCHK introduce the digital yuan to an initial group of 500 users, which was expanded to include 2,100 at the start of 2023.
Success in Hong Kong will give the PBoC hope that its CBDC can be deployed in cross-border transactions. The PBoC is still recovering from the scathing opposition that the digital yuan received in the U.S., with Congress moving to ban the CBDC on account of being a tool for surveillance.
The PBoC is reportedly working on cross-border functionalities with Russia’s incoming digital ruble, fresh from the successes of its joint experiment with the central banks of Hong Kong, Singapore, and the United Arab Emirates.
Boosting CBDC adoption rates
The Chinese central bank is keen on increasing the adoption metrics around the digital yuan ahead of a full-scale launch. The digital yuan faces stiff competition from existing payment platforms like Alipay and WeChat Pay, but the PBoC is confident of onboarding millions of Chinese residents to the platform.
Over $30 million worth of digital yuan subsidies have been issued to residents to increase adoption in addition to several technical innovations, including smart contracts and the red envelope functionality has been integrated.
Municipal governments have announced plans to introduce the digital yuan in several sectors, including transportation, payment of salaries and taxes, and for SME financing.
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
Watch: Blockchain provides perfect foundation for CBDC
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