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Hong Kong Moves Forward With Digital Currency Pilot

The Hong Kong Monetary Authority (HKMA) has announced the launch of Phase 2 of its e-HKD Pilot Program.

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Hong Kong is embarking on the next stage of its e-HKD Pilot Programme, taking a significant step towards exploring a digital version of the Hong Kong dollar. This initiative aims to delve deeper into the potential applications of a central bank digital currency (CBDC) within Hong Kong's financial system.

Phase 1 of the program, completed in October 2023, focused on understanding the feasibility of an e-HKD for domestic retail use cases. The HKMA studied its potential in areas like programmable payments, facilitating settlements with tokenized assets, and enabling offline transactions.

Exploring Programmability, Tokenization, and More

Phase 2 builds on this initial success by focusing on specific areas identified in Phase 1 where an e-HKD could offer unique advantages. These areas include:

  • Programmability: This allows for embedding specific instructions within a payment, potentially enabling features like automatic deductions or scheduled payments.
  • Tokenization: This involves representing traditional assets like stocks or bonds on a digital ledger, potentially streamlining the settlement process for these assets.
  • Atomic Settlement: This ensures simultaneous exchange of both sides of a transaction, reducing settlement risks.

In addition to these areas, Phase 2 will also explore entirely new use cases for the e-HKD that haven't been previously considered, HKMA said in an announcement on Thursday.

To facilitate innovation and development, the HKMA will leverage a new "enhanced e-HKD sandbox." This sandbox environment will be built upon the infrastructure developed for Project Ensemble, a separate initiative exploring a wholesale CBDC. This combined approach allows pilot participants to accelerate the prototyping, development, and testing of e-HKD use cases.

Hong Kong Announces New Wholesale CBDC Project to Support Tokenization
The Hong Kong Monetary Authority (HKMA) has unveiled Project Ensemble - a wCBDC project focusing on tokenization

The e-HKD Pilot Programme is part of the HKMA's broader research efforts into the potential of CBDCs. The Authority established a CBDC Expert Group to study crucial aspects like programmability, privacy, and interoperability. The learnings from both phases of the pilot program, along with the expert group's research, will inform the HKMA's decision on the potential future implementation of a full-fledged e-HKD, the Authority said.

The HKMA welcomes participation from organizations interested in contributing to Phase 2 of the e-HKD Pilot Programme. Applications are open until May 17th, 2024.