Hong Kong enables digital yuan payments

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Hong Kong will allow residents to set up digital yuan wallets and make payments at local merchant stores, becoming the first region beyond mainland China to support the central bank digital currency (CBDC).

The Hong Kong Monetary Authority (HKMA) recently announced that it had partnered with the People’s Bank of China (PBoC) to expand the scope of the digital yuan.

Residents in the city-state can now open CBDC wallets with four of China’s largest banks: Bank of China, China Construction Bank, Bank of Communications and the Industrial and Commercial Bank of China, HKMA revealed in a statement.

“We are delighted that Hong Kong, being the first place in conducting cross-boundary e-CNY pilot, has also become the first place outside the Mainland that enables its residents to set up e-CNY wallets locally,” commented Eddie Yue, the chief executive of the city’s de facto central bank.

HKMA also revealed that residents can top up their digital yuan wallets through the Faster Payments System (FPS), its real-time electronic payments infrastructure. Seventeen local banks, including Standard Chartered, HSBC (NASDAQ: HSBC), Bank of East Asia, Hang Seng Bank (NASDAQ: HSNGY), and virtual banks like ZA Bank, Airstar Bank, and Fusion Bank, will support the top-ups.

“By expanding the e-CNY pilot in Hong Kong and leveraging the 24×7 operating hours and real-time transfer advantages of the FPS, users may now top up their e-CNY wallets anytime, anywhere without having to open a Mainland bank account, thereby facilitating merchant payments in the Mainland by Hong Kong residents,” added Yue.

Chinese tourists can now pay at Hong Kong merchants with their digital yuan and vice versa, although the latter will be subject to an annual spending limit of 50,000 yuan ($6,900) and a 10,000 yuan ($1,380) balance limit.

The two central banks pledged to continue working together to expand the CBDC payment options for Hong Kong residents. This includes enabling peer-to-peer transfers within Hong Kong, which are currently not supported.

While a significant stride, the integration is only a pilot for now. According to Nikkei, only 300 merchants in Hong Kong currently accept the CBDC. Additionally, the annual spending cap will limit spending to smaller items such as food and entertainment.

Still, it’s a big win for China. The Asian giant has been pushing its digital currency for years, and while it got off to a slow start, data shows that it has been racking up more users in recent months. According to the Atlantic Council, the CBDC now has over 260 million users and is available as a payment option at over 10 million physical and online stores.

“I think this is pretty much the direction they want to go,” comments Gary Ng, an economist at Natixis, the French asset manager with $1.2 trillion in assets under management. Ng believes that several companies in Hong Kong will start using the digital yuan soon.

Despite the government’s push, Chinese residents remain apprehensive of the e-CNY. As CoinGeek reported, a lack of trust in the government and privacy concerns have pushed those paid partially or fully in the digital currency to sell it off immediately for yuan.

Meanwhile, the Chinese government is exploring other avenues to promote the currency, including through cross-border settlements. Bloomberg reported that the country paid for millions of barrels of oil, iron ore and gold with the digital yuan.

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: Finding ways to use CBDC outside of digital currencies