Today, the Hong Kong Monetary Authority (HKMA) took a significant step forward in its exploration of central bank digital currencies (CBDCs) by releasing the results of its first phase of CBDC pilots involving 16 institutions. These trials offer a tantalizing look into how a digital Hong Kong Dollar (eHKD) could potentially revolutionize the region’s payments landscape.
Hong Kong is already known for its advanced payment options. Despite this, the CBDC trials found the most value in various programmable payment applications. While it’s important to note that no decision has been made regarding the launch of a CBDC, the trials utilized hypothetical eHKD.
Programmable Payments: One of the standout areas explored was programmable payments. For instance, Standard Chartered conducted a pilot using offline eHKD, and the Bank of China (Hong Kong) delved into programmable CBDC for prepayments. Other programmable payment use cases included enabling smaller businesses to afford loyalty programs, tracking payments for rewards and loyalty, and disbursing government subsidies. The challenge with programmable payments lies in managing smart contracts, with discussions around potentially establishing a repository of smart contract templates.
However, there is a distinction between programmable payments and programmable money, where the latter restricts funds to specific purposes. Implementing this concept at issuance could raise concerns about the singleness of money.
Six Key Areas Explored During CBDC Pilots:
- Full-Fledged Payments
- Programmable Payments
- Offline Payments
- Tokenized Deposits
- Settlement Instructions for Web3
- Settlement of Tokenized Assets
The primary concern with using distributed ledger technology (DLT) for a retail CBDC is scalability. Nevertheless, the HKMA acknowledges that DLT can offer better future interoperability and ease of development.
While this first phase of the e-HKD Pilot Programme has uncovered the potential of an e-HKD, it’s important to remember that these trials took place on a small scale in a controlled environment. Further research and evaluation are necessary to determine if these benefits can be realized on a larger scale in real-world scenarios.
As of now, the HKMA has not made a decision regarding the introduction of an e-HKD. The insights gained from this pilot phase will guide their approach to potential e-HKD implementation. The next phase of the program will dive deeper into select pilot cases from Phase 1 and explore new e-HKD use cases.
In the words of Mr. Eddie Yue, Chief Executive of the HKMA, “Phase 1 of the e-HKD Pilot Programme has examined many innovative use cases of an e-HKD and has provided valuable insight to the HKMA on how an e-HKD can potentially add tangible value to businesses and consumers. These pilots have also raised a number of areas for future study. We thank all participating firms for their strong interest in the program and look forward to continuing our close partnership with the industry in our exploration of central bank digital currencies.”
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