Hong Kong Monetary Authority Advances e-HKD Pilot Program
The Hong Kong Monetary Authority (HKMA) is preparing for the second phase of its e-HKD (e-Hong Kong dollar) pilot program following the successful completion of Phase 1 of its in-house central bank digital currency (CBDC) trial. The e-HKD pilot program was launched in November 2022 as part of the HKMA’s “Fintech 2025” strategy to assess the commercial viability of an in-house CBDC. Phase 1 focused on six areas, including full-fledged payments, programmable payments, offline payments, tokenized deposits, settlement of Web3 transactions, and settlement of tokenized assets.
According to the HKMA’s report on the e-HKD Phase 1 trial, programmability, tokenization, and atomic settlement were identified as three key areas where Hong Kong’s CBDC could benefit consumers and businesses. The report stated, “The next phase of the e-HKD pilot program will build on the success of Phase 1 and consider exploring new use cases for an e-HKD.”
In the next phase of the pilot program, the HKMA plans to delve deeper into use cases that have shown promising CBDC applications. Technical considerations suggest a preference for a distributed ledger technology (DLT)-based design, given its interoperability and scalability capabilities.
Hong Kong’s CBDC program adopts a three-rail approach, which includes foundation layer development, industry pilots, iterative enhancements, and full launch. The current trial of the e-HKD program, which is the second rail, is supported by public and private organizations to ensure commercial viability for both parties. The HKMA also stated that it will continue working on rail 1 initiatives, such as establishing the legal and technical foundations for e-HKD.
Parallel to efforts for localized CBDCs, central and commercial banks have collaborated under Project mBridge to explore solutions for faster, cheaper, and more transparent cross-border payments. HKMA CEO Eddie Yue announced that mBridge will expand and be commercialized as it welcomed new banking members from China, Hong Kong, Thailand, and the UAE. Yue added, “We are expecting to welcome more fellow central banks to join this open platform. And very soon, we will launch what we call a minimum viable product, with the aim of paving the way for the gradual commercialization of mBridge.”
The e-HKD pilot program’s progression marks an important step for Hong Kong’s CBDC development, as the HKMA seeks to harness the potential of digital currencies for the benefit of its economy and financial ecosystem.
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