Blockchain for Banking News

Hong Kong CBDC pilot involves 16 banks, payment providers

CBDC ehkd hong kong digital currency

Today the Hong Kong Monetary Authority (HKMA) unveiled its central bank digital currency (CBDC) pilot program for the e-HKD. Sixteen banks and payment firms will collaborate across a dozen use cases.

In September 2022, the central bank outlined its three-pronged approach to developing a CBDC, although it has yet to decide to proceed. The first element was the legal foundation and the technical infrastructure for a wholesale layer for its CBDC. The pilot launch means the design of that layer is complete, and it expects to take two to three years to develop it. The other elements are the current pilot phase followed by a potential implementation approach.

Most of Hong Kong’s largest banks are involved in the pilots, with HSBC and Hang Seng Bank involved in two a piece. It also includes several payment technology firms, including Alipay (HK), Ripple, Gieseck+Devrient (G+D), Visa and Mastercard.

The HKMA jointly ran a Global Fast Track CBDC Challenge with FintechHK. The six winners are all participating in the pilots.

The categories for the applications include:

  • full-fledged payments 
  • programmable payments  
  • offline payments 
  • tokenised deposits 
  • settlement of Web3 transactions
  • settlement of tokenized assets.

HKMA CEO Eddie Yue said this was an “opportunity for the HKMA to collaborate with the industry in exploring innovative use cases and maximising our readiness for a potential e-HKD. We appreciate the industry’s active participation.”

It also announced plans for a CBDC Expert Group of academics to explore topics such as privacy, cybersecurity and interoperability.

CBDC for tokenized deposit settlement

One of the most novel use cases is exploring tokenized commercial bank deposits with HSBC, Hang Seng Bank and Visa, presumably with Visa providing the interoperability between banks. HSBC said it would study the “viability, key design considerations and interoperability” of deposit tokens. Such a solution would enable the banks to settle the tokenized deposit payments with CBDC. 

The transfer of deposit tokens generally works differently from a stablecoin transfer. Say you send me an HSBC coin, and I don’t have an HSBC account, but I have a Hang Seng account. Hang Seng Bank will give me Hang Seng tokens instead. Now Hang Seng Bank holds the HSBC tokens because it does have a bank account at HSBC.

There are a few ways of dealing with the HSBC tokens. One is that Hang Seng Bank could keep them. Or HSBC can settle up by paying Hang Seng Bank with CBDC and burning (deleting) the HSBC tokens.

Meanwhile, today Ripple announced its Ripple CBDC platform, which uses the same technology as its XRP Ledger.

Image Copyright: Composite Ledger Insights