Nearly one year after it formally began experimenting with a central bank digital currency (CBDC), the Hong Kong Monetary Authority (HKMA) announced the successful completion of the first stage of pilots.
The banking regulator, in a 38-page report, described the first phase as a remarkable success in its attempt at rolling out an e-HKD. During the first stage, the HKMA narrowed its focus on full-fledged payments, offline payments, settlement of Web3 transactions, tokenized assets, and programmable payments, leaning on a mix of commercial banks and technology firms.
Going forward, the HKMA says the second stage will focus on areas demonstrating the most promise for the Hong Kong payment system before casting a wider net for new use cases. The central bank disclosed in its report that it will probe deeper into the CBDC functionalities of programmability, tokenization, and atomic settlements.
“The next phase of the e-HKD pilot program will build on the success of Phase 1 and consider exploring new use cases for an e-HKD, “ read the report.
The report notes the HKMA will proceed with distributed ledger technology (DLT) as its base layer, citing scalability and interoperability features. In terms of the technical design of the CBDC system, the central bank is leaning on a three-rail approach, with the first being “foundational layer development.”
The second rail will involve “industry pilots and iterative enhancements” to test CBDC use cases in real-world scenarios ahead of a proposed launch. Currently, the HKMA is still tinkering with the first and second rails, pledging to revisit technical and regulatory standards of the e-HKD system in the second phase of pilots.
The HKMA has yet to make a final decision regarding launching an e-HKD, noting that it will have to satisfy itself that the proposed CBDC can compete with existing payment options in the country.
“Careful consideration should be given to the positioning of an e-HKD, as well as the roles that the HKMA and the industry may take up in implementing and operating an e-HKD,” according to the HKMA. “Other factors such as policy and technical design as well as legal considerations will also need to be studied.”
An eye on cross-border functionality
Although the HKMA’s report did not mention cross-border functionalities for retail CBDCs, the central bank has been making significant plays in the field. Following the successes of the Bank for International Settlements (BIS) mCBDC pilot, HKMA Chair Eddie Yue hinted toward the launch of a minimum viable product (MVP) in 2024.
“We are expecting to welcome more fellow central banks to join this open platform,” said Yue. “And very soon, we will launch what we call a minimum viable product, with the aim of paving the way for the gradual commercialization of mBridge.”
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