branch of Standard Chartered in Hong Kong, China

Standard Chartered wraps up offline e-HKD CBDC trial

Standard Chartered (Hong Kong) (NASDAQ: SCBFF) has announced the completion of a pilot program testing the offline functionalities of a central bank digital currency (CBDC), racking up remarkable successes.

As per the official disclosure, the pilot focused on how a hypothetical e-HKD may support payments in areas without internet connectivity or power supply. Standard Chartered (Hong Kong) stated that it conducted two rounds of experiments over four months with over 200 participants to achieve its objective.

The banking institution selected several merchants across various sectors, including transportation and the restaurant industry. Standard Chartered opted for both industries to test the effectiveness of its offline CBDC solution in a “small value, but high-volume transaction environment.”

While the report did not disclose technical details, a cursory look indicates a reliance on prepaid smart cards and NFC functionalities of mobile phones. Participants were given smartcards pre-loaded with hypothetical e-HKDs to be spent at approved merchants.

The pilot recorded successes during a deployment at the bank’s Mid-Autumn Festival flea market, showing promise in processing transactions without internet connectivity.

“To explore the benefits of an e-HKD as a viable alternative to cash, we have worked with academia, the catering industry, public transportation, and small retailers to trial on testing the offline payment capabilities, especially in challenging environments, where there is no internet connection or power supply,” Esther Mai, head of digital banking at Standard Chartered Hong Kong.

The bank was handpicked by the Hong Kong Monetary Authority (HKMA) with 15 other commercial banks to participate in its retail CBDC trial. Other participating banks are exploring CBDC use cases in tokenization, Web3 transactions, and cross-border payments with varying degrees of progress.

Analysts argue that offline payments present the best chance for central banks to close the gap with existing payment options with a first-mover advantage. The prospects of improving financial inclusivity through offline payments have seen several banking regulators throw their weight behind developing solutions.

Earlier in the week, Australia and New Zealand Banking Group (ANZ) scored impressive wins following the completion of an eight-week pilot into an offline CBDC pilot.

e-HKD launch may be many years away

Despite the rapid advances made by participating commercial banks and technical partners, the HKMA said it is in no hurry to launch a CBDC. HKMA CEO Eddie Yue disclosed in a recent speech that the banking regulator must ensure that key players have garnered sufficient experience.

The HKMA noted that existing private payment alternatives in the region offer a wide range of tailor-made services for consumers, casting doubt over the future of a retail CBDC. To compete favorably in the space, the HKMA says its offering will have to address particular pain points that are not addressed by existing payment options.

“It is still the beginning of the trial process,” said Yue. “We have to find a use case that is better than the current retail payments. Because if you are not either safer, faster, or more convenient, then it will not be doable.”

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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