Hong Kong has completed the first pilot phase of its central bank digital currency (CBDC), the digital Hong Kong dollar (e-HKD). The Hong Kong Monetary Authority (HKMA) is now preparing for the second phase of the CBDC pilot program.

The Pilot, which started in November 2022, evaluated the CBDC’s commercial viability as part of Hong Kong’s Fintech 2025 implementation strategy. 

According to the initial report, the phase 1 pilot assessed e-HKD utility in six key areas. These areas included programmable payments, full-fledged payments, offline payments, Web3-based transactions settlements, tokenized deposits, and tokenized assets-based settlements.

The latest report outlined tokenization, programmability, and atomic settlement as the primary areas where the e-HKD will benefit businesses and consumers. 

Furthermore, the HKMA said the second phase of the e-HKD pilot will consolidate the achievement from Phase 1. During phase 2, the HKMA will explore more use cases for the CBDC. Also, it will research more on those use cases that proved promising for the e-HKD applications during the first trial. Regarding the tech considerations for the CBDC, the HKMA might employ a distributed ledger technology-based design. The reason is that distributed ledger technology offers interoperability and high scalability, key qualities needed for the potential implementation of the e-HKD.

According to the flowchart above, Hong Kong’s e-HKD project comprises a three-rail approach. These include foundation layer development, iterative enhancements and industry pilots, and full launch.

Presently, the CBDC program is at the second rail, with support from public and private organizations. The aim is to ensure that the CBDC is commercially viable for private and public organizations.

Further, the Monetary Authority noted that it would continue working on the rail-1 programs, which involve laying out technical and legal frameworks for the e-HKD.

Meanwhile, besides the local CBDC initiatives, the Bank of International Settlement (BIS) launched Project mBridge in 2021. For context, Project mBridge is a multi-CBDC platform to facilitate cross-border payments. 

This is a collaborative effort by the HKMA, banks of China, Thailand, the UAE, and the BIS Innovative Hub. The sole aim of launching the initiative is to create faster, more transparent, and cheaper cross-border payment solutions using the mBridge Ledger. 

Besides the founding central banks of China, Thailand, Hong Kong, and the UAE, several commercial banks have joined the project. 

As of September 25, Eddie Yue, CEO of the HKMA, said mBridge is becoming commercialized. The expansion allowed new member financial institutions from Hong Kong, China, the UAE, and Thailand. 

Yue urged more central banks to join the mBride platform. Also, he announced that they will soon launch a new product tagged as a minimum viable product. According to the HKMA CEO, this new product aims to foster the gradual commercialization of mBridge.

According to the BIS October 2023 report, a pilot is ongoing to investigate the mBridge’s technological and practical feasibility.

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