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Hong Kong taps HSBC, Visa firms for CBDC trials

The Hong Kong Monetary Authority (HKMA) has confirmed the launch of its central bank digital currency (CBDC) pilot after several months of watching from the sidelines.

In a statement, the banking regulator said it has recruited the services of 16 firms to participate in the first round of pilots. The selected firms are a mix drawn from the payments, technology, and financial sector, including banking giants HSBC and Visa (NASDAQ: V)

The HKMA’s pilot will explore six categories of use cases, including offline payments, tokenized deposits, and settlement of Web3 transactions. Others include the settlement of tokenized assets, programmable payments, and full-fledged payments, which the chosen firms will explore in collaboration with the central bank.

“We appreciate the industry’s active participation in the pilots and look forward to the results,” Eddie Yue, Chief Executive of the HKMA, said. “By fostering government-industry-academia collaboration in CBDC research, we aim to ensure the relevance of our research and development efforts, and enable the translation of such outcomes into viable business opportunities.”

Despite the commencement of pilots, the HKMA has yet to confirm its intention to launch an e-HKD, but Yue remarked that the findings from the studies might influence the regulator’s decision. The HKMA is no stranger to CBDC pilots after participating in a cross-border CBDC experiment by the Bank for International Settlements (BIS) and the central banks of China, the United Arab Emirates (UAE), and Singapore.

Hong Kong’s chief banking regulator disclosed that it would make public the findings from the pilot during its FinTech Week starting on October 30. Yue remarked that the HKMA has several pilots lined up to explore other use cases for CBDC as part of its plans to transform its digital economy.

However, it remains unclear if residents will welcome a CBDC with open arms, given the lackluster reception of the digital yuan. Despite the People’s Bank of China (PBoC) offering a 20% discount on purchases in over 1,000 stores, only 625 residents obtained digital yuan hard wallets four days after launch.

Multiple use cases for CBDCs

Not content with merely using CBDCs as a cash substitute, central banks are pushing the boundaries with their digital currencies. The PBoC has already deployed its digital yuan for securities trading, while Australia’s eAUD pilot scored wins in foreign exchange transactions.

The Reserve Bank of Australia (RBA) recorded successes in using its CBDC in corporate bond settlements and livestock auctions. Despite the new functionalities, central banks face the arduous task of swaying public opinions to CBDCs amid fears that they are a tool for citizen surveillance.

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.

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