Hong Kong Takes the Lead in Forging Plans Central Bank Digital Currency

The Hong Kong Monetary Authority (HKMA) has issued an invitation for industry and academic to provide input on a proposed architecture for a retail central bank digital currency. Such a currency would involve a wholesale system for the central bank to issue and redeem a central bank digital currency, but also a retail system for commercial banks to distribute and circulate either CBDC or CBDC-backed e-money. 

The HKMA is seeking input into technology solutions that address the problems of cross-ledger synchronisation, over-issuance prevention, privacy-preserving transaction traceability, and flexible instantiations of different two-tier distributions models. At the same time, it is asking for comment on new ideas and project proposals from the industry itself.   The idea of using a central bank digital currency (CBDC) was given impetus in 2017 when the HKMA began researching the idea under Project LionRock in 2017. 

The HKMA has since collaborated with other regional banks, Hong Kong Takes the Lead in Forging Plans Central Bank Digital Currency notably with the Bank of Thailand (BOT) in 2019 under Project Inthanon-LionRock to study the potential for wholesale CBDC for cross-border wholesale payments. The project entered the second phase in 2020 and was renamed the Multiple CBDC Bridge (mBridge) in February 2021.

The HKMA has been joined by the Central Bank of the United Arab Emirates and the Digital Currency Institute of the People’s Bank of China (PBoC), and strongly supported by the Bank for International Settlements (BIS) Innovation Hub Centre in Hong Kong.

In early September, Benoît Cœuré, Head of the BIS Innovation Hub, said central banks needed to steps up to widespread market changes. “The pandemic has accelerated a longer-running move to digital. Mobile and contactless payments are already part of our daily lives; QR codes and "buy now, pay later” options are gaining popularity; gloves, badges and Olympic uniforms with payment functions are being prepared for the Beijing Winter Olympics; and the tech-savvy generation will soon dream about money and payments for the metaverse,” he told the Eurofi Financial Forum in Ljubljana in mid-September. 

As technology opens up design choices and involves an operational and oversight role for central banks and public-private partnerships to develop system features, the HKMA is consulting on its proposals.
The paper “e-HKD: A technical perspective” is here. 

The paper “e-HKD: A technical perspective” is accessible at https://www.hkma.gov.hk/media/eng/doc/key-functions/financial-infrastructure/e-HKD_A_technical_perspective.pdf