Hong Kong Advances e-HKD Tests

The Hong Kong Monetary Authority (HKMA) is actively advancing research on the e-HKD, a proposed central bank digital currency (CBDC).

CEO Eddie Yue provided insights into recent tests conducted on the programmability of the e-HKD, emphasising the importance of finding use cases that are safer, faster, or more convenient than current retail payment methods. Yue highlighted the programmable function of the e-HKD, allowing the issuer to set specific limits on the digital currency's usage. The Bank of China in Hong Kong conducted tests on this feature, collaborating with ten firms to enable customers to use e-HKD in various retail payment promotions.

Yue acknowledged the preliminary stage of e-HKD, emphasising the need to identify superior use cases for retail payments. He stated, "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."

The HKMA is also part of Project Mbridge, a CBDC network being tested jointly with the People's Bank of China (PBOC) and the central banks of Thailand and the United Arab Emirates. The project aims to address critical policy issues like governance and liquidity provisions. Contrary to previous reports, Yue indicated that the minimum viable product for Mbridge is expected by mid-2024, differing from earlier estimations of a possible year-end launch.

Regarding Project Mbridge, Yue mentioned the ongoing efforts to resolve governance and liquidity provision issues, stating, "We are working out important policy issues like governance and liquidity provisions." The project involves four participants preparing for the launch of a minimum viable product by mid-2024.

The HKMA has been cautious about providing a definite launch date for its retail CBDC, e-HKD, emphasising the need for key players to gain sufficient experience to compete favourably in the payment space. Initial experiments with the retail CBDC have shown promise, particularly in the area of programmable payments, where consumer funds can be ring-fenced with a merchant or limited to specific scenarios. The Bank of China (Hong Kong) has been a leader in studying programmable payments, allowing select users to test CBDC payments for gym memberships, healthcare, and spa sessions.

The e-HKD's potential use cases extend beyond programmable payments, with consideration for deployment in tokenized deposits and tokenized assets. The HKMA has expressed interest in exploring tokenization following the success of Project Evergreen, a blockchain-based bond issuance project.

While facing challenges on the domestic front, the HKMA aims to explore the use of its CBDC in cross-border payments. The authority has participated in the Bank for International Settlements (BIS) mBridge pilot, with plans to release a minimum viable product in 2024. The project is open to new participants, with up to 20 central banks reportedly monitoring its developments.

Hong Kong and China have been fostering a harmonious relationship in exploring cross-border transactions. In July, it was announced that Chinese tourists in Hong Kong could use their digital yuan wallets for payments, and vice versa for Hong Kong tourists in mainland China. The recent upgrade allows tourists to top up their digital yuan wallets using Hong Kong's Faster Payment System or payment providers like Mastercard and Visa.