Hong Kong Considering CBDC as Part of Fintech Approach

A study from Hong Kong Monetary Authority (HKMA) presents the thoughts and findings on CBDCs during the summer of 2022. Also, the Hong Kong regulators released a whitepaper today. In it, we discover the state is exploring the possibility of a digital Hong Kong dollar (e-HKD).

Hong Kong might be analyzing the potential of a retail-focused central bank digital currency (CBDC) which aims to study the feasibility of e-HKD.

What the Whitepaper Aims to Accomplish

The whitepaper is part of a fintech-experimentation study for the digital Hong Kong dollar (e-HKD). It will scout possible architecture and design options that could help in the infrastructure for distributing e-HKD.

The whitepaper bases its research on a technical and regulatory policy perspective to create a dual-tier system. The first distribution model will focus on a “central bank to issue and redeem CBDC,” while the other for “commercial banks to distribute and circulate either rCBDC or CBDC-backed e-money. The whitepaper will also report the initial thoughts and findings of the research.

In a nutshell, it will traverse common problems like over-issuance prevention, cross-ledger synchronization, privacy-preserving transaction traceability, etc. It will try to counter these problems by examining technological solutions like CBDCs.

HKMA’s CBDC Journey Briefly

Hong Kong began exploring central bank digital currencies in 2017 with the project LionRock. From that time, they have partnered with other central banks in broadening their knowledge of a retail-focused CBDC.

For example, the state began a seven-month collaboration with the Bank of Thailand last year to research the “potential of wholesale CBDC for cross-border payments.”

Soon after, the partnership blossomed into multiple CBDC bridges. Firstly, in February 2021, it was the Central Bank of the United Arab Emirates that emerged. Secondly, the Digital Currency of the People’s Bank of China appeared as a bridge, too.

The digital CBDC will utilize distributed blockchain technology to provide a proof-of-concept model for a unified payments network.

HKMA’s Continued Probe

It announced in June 2021 a financial technology initiative called Fintech 2025. The industry will offer support to central banks in adopting a CBDC, developing a skilled workforce, and including today’s enterprise.

Eddie Yue, chief executive of HKMA, considers the whitepaper as the genesis of their analysis for the e-HKD. He believes that the knowledge they learned from the research would help inform further consideration. Also, it would support deliberation on the technical design of the e-HKD.

Yue also encouraged feedback and suggestions from academia and industry to aid them in enriching their perspectives.

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HKMA’s probe into e-HKD seeks to examine the usefulness and workability of e-HKD, legal and policy considerations

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