Last week, Hong Kong-based Fubon Bank unveiled plans for a real estate tokenization pilot with Ripple, the blockchain and crypto firm associated with XRP Ledger. The trial is one of a dozen projects previously announced by the Hong Kong Monetary Authority (HKMA) as part of the region’s central bank digital currency (CBDC) trials.
The test combines a simulated eHKD, tokenized real estate, and finance agreements to allow users to tokenize real-world assets as collateral for loans. While the Fubon Bank interview elaborated on what the trial would involve, it didn’t clarify why a CBDC would benefit this particular use case.
Why a CBDC helps for high value property transactions
Fubon’s pilot is not the first to explore DLT or CBDC applications for real estate. Earlier this year, the Bank of England published the results of Project Meridian, which showcased a delivery versus payment (DvP) settlement of a house purchase, allowing it to eliminate the risk of one party handing over the money, and the other failing to deliver the asset.
Others are looking at how programmable money can help with high value transactions. For example, the real estate buyer could provide programmable CBDC, which uses a smart contract to lock the cash in an escrow-like arrangement until the property title is ready to be exchanged. Beyond eliminating counterparty risk, it removes the need to lodge funds with a lawyer who would usually keep the money in a trust account until the transaction is ready to complete. That involves some degree of risk.
The Fubon CBDC experiment
We’re guessing this is the sort of benefit that Fubon aims to demonstrate. Additionally, there will be an eHKD wallet that will allow consumers to monitor the real-time loan-to-value ratio.
One of the reasons for selecting this sort of sophisticated use case is because Hong Kong has a fast payment system (FPS), which already meets many people’s needs. So to attract users and convince them of the benefits of CBDC, the HKMA needs added value use cases.
Ripple’s CBDC experience
The simulation, expected for the third quarter of 2023, will be based on Ripple’s CBDC platform, which uses the same technology as the XRP Ledger except on a private network.
The company has quite a bit of CBDC experience. Earlier this year, it announced a collaboration with the Central Bank of Montenegro to develop a digital currency strategy for a CBDC or national stablecoin. In 2022, it reached the final stage of the G20 Techsprint CBDC Challenge and won a contract with the Republic of Palau to develop a USD-backed digital currency that launched this week.
Ripple has also recently faced a legal battle with the SEC over the XRP cryptocurrency.