Exploring the Future of Currency: Hong Kong's Journey with CBDC
This essay encapsulates the Hong Kong Monetary Authority’s (HKMA) efforts and progress as of April 2024 in the realm of Central Bank Digital Currency (CBDC), highlighting key projects and the establishment of the CBDC Expert Group to spearhead research and collaboration. The HKMA's cautious yet forward-thinking approach underscores its readiness to embrace the future of digital currencies.
Wholesale CBDC Initiatives: Project LionRock and Beyond
The HKMA's journey began with Project LionRock, a proof-of-concept endeavor that delved into the applications of CBDCs for large-value payments and delivery-versus-payment settlements.
This project laid the groundwork for subsequent initiatives
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Project Inthanon-LionRock: a collaborative proof-of-concept initiative by the HKMA to explore the application of CBDCs in large-value payments and delivery-versus-payment settlements.
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Project mBridge: collaborative initiative exploring the use of blockchain technology for cross-border payments, aiming to enhance efficiency and reduce costs in international transactions.
In addition, HKMA also started Project Ensemble in March 2024 is an initiative exploring the tokenization of assets to facilitate a more efficient and secure market. The Project Ensemble Architecture Community is formed and it is a collaborative initiative that brings together experts from various fields to explore and develop innovative architectural solutions for the implementation of CBDC systems.
Retail CBDC: The Prospect of e-HKD
In 2021, the HKMA expanded its focus to retail CBDCs, launching Project e-HKD to assess the feasibility of issuing an e-HKD. This project encompasses both technical and policy considerations, reflecting the HKMA's comprehensive approach to understanding the implications of CBDCs on the broader financial ecosystem.
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Technical Perspective: The HKMA is exploring the technical feasibility of e-HKD, focusing on secure and efficient infrastructure for potential implementation.
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Policy and Design Perspective: Considerations include the design of e-HKD to meet Hong Kong’s financial needs while ensuring compliance with regulations and standards.
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Three-Rail Approach: This approach involves studying, experimenting, and piloting CBDCs to prepare for any future decision to issue e-HKD.
e-HKD Pilot Programme is Launched by the HKMA in November 2022 as part of their Fintech 2025 strategy to explore the use of a digital currency in Hong Kong. e-HKD Sandbox: A platform for participants to develop and test digital currency applications.
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Phase 1: Initiated in June 2021, this phase involved studying the technical feasibility and policy considerations for issuing a retail CBDC in Hong Kong, known as e-HKD. The focus was on understanding the infrastructure needed and the potential impact on the financial system.
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Phase 2: Building on the findings from Phase 1, this phase aimed to pilot the e-HKD in a controlled environment. The goal was to test the practical aspects of distribution and circulation, and to assess the operational readiness for a potential rollout.
The CBDC Expert Group: Fostering Collaboration and Research
To deepen its research, the HKMA established the CBDC Expert Group in October 2023. Comprising experts from diverse fields, the group aims to address key policy and technical issues related to CBDCs. Their inaugural research paper on privacy issues and subsequent work on interoperability highlight the HKMA's commitment to advancing CBDC knowledge.
Conclusion
The HKMA's exploration of CBDCs is a testament to Hong Kong's dedication to maintaining its status as a leading international financial center. Through continuous research and collaboration, the HKMA is paving the way for a future where digital currencies coexist with traditional monetary systems, offering efficiency, security, and innovation.
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