Banking News

Cross border CBDC trial to involve Hong Kong, Thai stock exchanges, 30 banks

digital currency hong kong dollar

Yesterday Eddie Yue, Hong Kong Monetary Authority (HKMA) CEO, spoke about the organization’s work on central bank digital currency (CBDC). It has two tracks, one for wholesale CBDC, where it’s exploring cross border payments. The HKEX and Stock Exchange of Thailand (SET) are likely to get involved later this year. For retail CBDC, its Project Aurum will share its research in a year.

A while back, the HKMA started collaborating with the Bank of Thailand on Project Inthanon-LionRock to explore using wholesale CBDCs to cut the costs of cross border payments. Last year the Bank for International Settlements (BIS) came on board, and China’s and the UAE’s central banks joined the multi-CBDC (M-CBDC) project.

The HKMA CEO explained that the first phase with Thailand created a network corridor type of prototype. The second phase is to commercialize the prototype, including creating an architectural design, outlining use cases, and exploring legal issues and other practical challenges.

Yue said with phase two, “you should see cross border payments that can be done in real-time, across four jurisdictions, 24/7 with the FX leg settled real-time on a PvP basis. And if that is successful, it will actually go a long way in advancing a cross border payment solution for everybody.”

Assuming that proves fruitful, phase three will start later this year. It will include participation from the HKEX and SET stock exchanges as well as 30 commercial banks across the four jurisdictions, which will execute real transactions.

Separately Yue spoke about Bond Connect and Stock Connect, in which the HKEX provides access for international investors to mainland China’s bond and stock markets. One can imagine that a digital currency would prove useful in that scenario, although it was not mentioned specifically.

“If phase three proves to be successful, we can actually commercialize it,” said Yue. “And we do hope that there will be wider scale implementation around the region so that at least for regional cross border flows, it will be much cheaper and faster.”

At the same time, the Monetary Authority of Singapore is exploring another approach to M-CBDC, also with the BIS. Its Project Dunbar involves commercial banks using a single platform that works across multiple jurisdictions. And last month, the central banks of Switzerland and France shared the results of their cross border trials.

HKMA CEO Yue also touched on Hong Kong’s retail CBDC work, Project Aurum. He said it is exploring the technical aspects of having a 2-tier CBDC structure with the central bank at the center and banks and payment intermediaries doing the end-user interfacing. However, he said the policy trade offs were more challenging. So it initiated an internal study that explores topics such as privacy and resilience and expects initial results in about 12 months.

Yue didn’t discuss Hong Kong’s pilots with the People’s Bank of China for the retail use of the digital yuan or e-CNY by Hong Kong and Mainland tourists.