Exclusive: Hong Kong e-HKD trials explore ‘interesting use cases’ of digital currency in payments, investments: HKMA boss

Hong Kong’s trials of a digital currency called e-HKD have showed potential uses in payment, deposit and investment scenarios, but relevant players need more experience before a launch date can be considered, according to the head of the city’s de facto central bank.

“There are some interesting use cases of e-HKD in the areas like programmable payments, and in new areas like tokenised deposits and tokenised assets,” Eddie Yue Wai-man, CEO of the Hong Kong Monetary Authority, said in an interview with the Post.
Hong Kong in May launched a trial run for 16 banks and payment companies to test the digital currency with select small groups of clients, the first step towards introducing a virtual coin the public will eventually use to shop, dine out and transfer money.

In a programmable payment scenario, rules encrypted in the digital currency restrict the use of the money. This could, for example, ring-fence a consumer’s money on deposit with a merchant, protecting it in case of the merchant’s collapse.

Eddie Yue Wai-man, CEO of the Hong Kong Monetary Authority (HKMA), pictured in the SCMP office in Causeway Bay on October 5, 2023. Photo: Nathan Tsui

Bank of China (Hong Kong) conducted a trial of the feature earlier this month, the lender said on October 3. The bank said it has teamed up with 10 firms allowing customers to use e-HKD to prepay for coupons for facial treatments, gym memberships, classes and medical treatments.

HSBC, the city’s biggest lender, in September teamed up with the Hong Kong University of Science and Technology and 200 of its students to conduct a one-week e-HKD pilot programme on campus, the lender said in a statement.

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The e-HKD is just the retail side of Hong Kong’s central bank digital currency (CBDC). The HKMA has also been working on a multi-CBDC project called the “mBridge” with the PBOC, and the central banks of Thailand and the United Arab Emirates to study its use for settling international payments.

It is a trial that has gotten the attention of the Saudi Central Bank (SAMA), one of 20 global monetary authorities observing the multi-CBDC project’s progress.

“Given the many considerations in the CBDC project and different stages of its process among central banks, it would be quite logical to have a wider consultation and engagement to support knowledge sharing and help to share best practice,” said Ayman Mohammed Al-Sayari, Governor of the Saudi Central Bank (SAMA), in an email response to the Post’s query. “We would certainly appreciate sharing of experiences by central banks.”

The four central banks will work out important policy issues like governance and liquidity provisions, and aim to launch a minimum viable product in the middle of next year, Yue said. The 20 central banks from Asia, Europe, the Middle East, the Americas and Africa that observing the scheme can jump in and join it at launch.

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Cryptocurrency solutions company Ripple, alongside its partner Fubon Bank, conducted a test using e-HKD to make payments for tokenised real estate and other real-world assets.

“The ability of the e-HKD to make payments can promote the tokenisation of real estate and other real-world assets,” Brooks Entwistle, senior vice-president and managing director of Asia-Pacific at Ripple, told the Post in May.

Yue said the 16 banks and payment companies that are involved in the trials will put together a report during fintech week, to be held from October 30 to November 5.

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“We will also invite some of the pilots to demonstrate their experience so far, during the entire week,” he said.

Yue said Hong Kong players need to gain more experience with the digital currency before a timeline for launch can be determined.

“It is still the beginning of the trial process,” he said. “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 one of about 100 central banks worldwide introducing or considering virtual currencies.

Mainland China has rolled out several pilot schemes for its digital yuan, the e-CNY.

People walk past a sign of digital yuan (e-CNY) during the 2021 China International Fair for Trade in Services (CIFTIS) in Beijng on September 5, 2021. Photo: Xinhua

The HKMA has been conducting small-scale trials using e-CNY for retail transactions in Hong Kong since last year. In the latest test, 100 Hong Kong athletes were given the chance to use the Hong Kong-based Faster Payment System (FPS) to top up their electronic wallets with e-CNY while attending the Asian Games in Hangzhou.

“It has been very successful,” Yue said. “People like it and consider it very convenient, with no hiccups.”

The HKMA and the People’s Bank of China (PBOC) will explore a similar linkage between FPS and e-wallets in the Greater Bay Area.

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