HSBC, HKUST partner on e-HKD CBDC pilot to complement banking regulator efforts

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Global banking giant HSBC (NASDAQ: HSBC) and the School of Business and Management of The Hong Kong University of Science and Technology (HKUST Business School) have announced the launch of a joint study to explore the possibilities of a retail central bank digital currency (CBDC).

The hypothetical e-HKD pilot is scheduled to run for one week and is designed to assist the Hong Kong Monetary Authority (HKMA) in its efforts to roll out a CBDC. In late 2022, the HKMA tapped HSBC and 16 others to participate in its e-HKD pilots, exploring a range of use cases.

Under the hypothetical pilot with HKUST Business School, HSBC confirmed that it had developed a blockchain technology-based platform to mirror the design of HKMA’s e-HKD architecture. According to HSBC, its platform will support instantaneous payments for several retail scenarios with the additional functionality of programmability via smart contracts.

HSBC added that the programmability features will automatically allow participants to receive rewards for eligible transactions. Over 200 students of HKUST have shown their interest in participating in the study, with participants receiving hypothetical e-HKD tokens to be spent at selected merchants on campuses.

“With our school’s fintech expertise, and our students and faculty members’ open mind towards trying out new tech, HKUST is an ideal site for CBDC experimentation and fertile ground for understanding its possibilities,” said Professor Kar-Yan Tam, Dean of HKUST Business School.

Tam said the findings from the hypothetical pilot will assist the HKMA in its quest to launch a CBDC that will address the existing pain points in Hong Kong’s financial system.

“The findings will help validate the effectiveness of a digital currency in retail, public-wide type scenarios, given the richness of the payment ecosystem in [Hong Kong] HK,” said Bojan Obradovic, HSBC’s Chief Digital Officer in Hong Kong. “We look forward to working with industry partners to harness the potential of emerging technology to shape the future of money.”

This is not the first time that the private sector and academia have teamed up to support the HKMA’s ambitions, with both HKUST and the HSBC conducting a joint survey to gauge public interest for CBDCs. The survey noted that over 50% of respondents indicated a willingness to interact with CBDCs if the offering offered high levels of privacy.

HSBC has previously participated in several CBDC initiatives, including the Global Fast Track CBDC competition and the Bank for International Settlements (BIS) mBridge pilot.

Hong Kong’s CBDC ambitions

Hong Kong has been considering the idea of a CBDC since 2022, roping the BIS as a design partner for the offering as it follows the blueprint laid by China’s digital yuan. However, in January, a Hong Kong lawmaker proposed converting its planned CBDC to a stablecoin in the wake of upheavals in the local ecosystem.

The HKMA has opened discussions with the UAE to explore the use of CBDCs in cross-border transactions, eyeing reduced cost and instantaneous payments. The banking regulator took part in a recently concluded BIS Proof-of-Concept (PoC) CBDC model focused on privacy and inclusivity.

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: Building CBDC systems on Bitcoin