Hong Kong Enters CBDC Pilot Phase 2

The Hong Kong Monetary Authority (HKMA) has initiated the second phase of its e-Hong Kong dollar (e-HKD) pilot program and has called on industry participants to submit potential use cases for its central bank digital currency (CBDC). On March 14, the HKMA announced the commencement of the second phase, which aims to explore the possibilities of a digital Hong Kong dollar in greater depth. This phase will focus on areas such as programmability, tokenization, and atomic settlement, to assess the value that e-HKD can bring. The HKMA intends to investigate new use cases that were not covered in the previous phase. The central bank has set a deadline of May 17 for market participants to apply and present their proposals. The HKMA expects this second phase to continue until mid-2025, providing ample time for participants to test and evaluate their proposed use cases. The financial regulator has also provided guidelines for those interested in participating in the pilot. These guidelines specify that applications will be evaluated based on criteria such as innovative elements, impact on consumer experience, readiness for market testing, compliance with regulations, and the extent to which they maximize the use of e-HKD in Hong Kong. The CBDC project was introduced in 2021 as part of Hong Kong’s “Fintech 2025” strategy, which seeks to promote the adoption of digital finance in the region by 2025. The central bank’s plans for the CBDC were published on June 8, 2021, and emphasized the government’s wider initiatives to encourage the use of digital finance within Hong Kong. The HKMA claims to have been researching CBDCs since 2017 to understand their potential applications. The institution is currently intensifying its efforts to enhance Hong Kong’s ability to issue CBDCs, both at wholesale and retail levels. Notably, Visa, a prominent payment processor, participated in the e-HKD pilot. On November 1, Visa concluded its pilot test for the digital Hong Kong dollar in collaboration with local banks HSBC and Hang Seng Bank. The pilot involved the tokenization of deposits, where funds were represented as digital tokens on a blockchain ledger, backed by corresponding balances.