Future of CBDCs in Hong Kong uncertain as pilot program concludes

The Hong Kong Monetary Authority (HKMA) remains undecided on making a policy decision regarding the introduction of a retail central bank digital currency (CBDC) after concluding the first pilot project of the e-HKD.

The HKMA noted that while CBDCs have the potential to offer unique benefits in certain areas, additional research and investigation are necessary to ascertain whether their implementation would significantly improve the monetary system

The HKMA added that CBDCs are not a cure-all for the inefficiencies found in the current system, as many of those problems stem from legacy processes that cannot be fixed via technology.

Project e-HKD

As a key part of its “Fintech 2025” strategy aimed at advancing Hong Kong’s digital financial infrastructure, the HKMA has been actively studying the potential of wholesale and retail CBDCs.

The e-HKD Pilot Programme was launched in November 2022. The HKMA and industry stakeholders collaboratively executed it to explore and evaluate the commercial feasibility of various use cases for an e-HKD.

Phase 1 of the program rigorously investigated potential domestic and retail use cases in six distinct categories: full-fledged payments, programmable payments, offline payments, tokenized deposits, settlement of Web 3 transactions, and settlement of tokenized assets.

A total of 16 firms from the financial, payment, and technology sectors were selected to participate in the experiments.

As a key part of its “Fintech 2025” strategy aimed at advancing Hong Kong’s digital financial infrastructure, the HKMA has been actively studying the potential of wholesale and retail CBDCs.

According to the report, CBDCs have the potential to facilitate faster, more cost-effective, and more inclusive transactions. They also unlock new types of economic transactions.

However, realizing such unique value on a large scale depends on market development and further investigation. Additionally, some existing inefficiencies are deeply rooted in longstanding business norms and processes rather than technological shortcomings.

Thus, while e-HKD holds the promise of leveraging new technologies, it may not be a panacea for all inefficiencies, the regulator wrote.

Further investigation needed

At present, the HKMA has not committed to a policy decision concerning the introduction and timing of an e-HKD, choosing to maintain a prudent stance.

The regulator added that any potential launch of a CBDC needs to consider the roles that the HKMA and the industry would play in its implementation and operation. Additionally, considerations regarding policy, technical design, and legal aspects will be integral to any future developments in this regard.

The watchdog wrote that the first phase of the e-HKD Pilot Programme has identified several areas that warrant further study.

In the upcoming phases of the program, the HKMA will delve deeper into these business and implementation issues, continuing its exploration of the possibilities of a retail CBDC.