Hong Kong invited to become CBDC hub of the world

Hong Kong financial regulators should adapt a cross-border perspective when developing retail and wholesale uses of the Hong Kong digital dollar, or e-HKD, if the city is to solidify its reputation as a digital financial center and offshore financial center in the world. renminbi, according to a local think tank.

Our Hong Kong Foundation (OHKF) recommended in a recent report that in cross-border wholesale use cases, Hong Kong should aim to develop into a hub for regional or global central bank (CBDC) digital currencies. by connecting the e-HKD with other CBDCs as part of the “Multiple Central Bank Digital Currency Bridge†project.

“At the moment, mainland China is still focusing on digital renminbi retail use cases [e-CNY]. But I believe that as an international financial hub, Hong Kong should start considering building its financial infrastructure networks proactively now to facilitate the large cross-border use cases of CBDCs, which are expected to grow in the near future. ‘future,’ said Stephen Wong, deputy general manager. director and head of the foundation’s public policy institute.

According to the OHKF report, Hong Kong should take full advantage of its close ties to the mainland and its first-mover advantage as one of the participants in the m-CBDC bridge. Hong Kong is expected to invite other economies with relatively mature wholesale CBDC development that share close economic ties with Hong Kong, such as Japan, Singapore and Switzerland, to join the m-CBDC bridge. After more CBDCs join, Hong Kong cannot play the role of connectivity, according to the report.

In February, the Hong Kong Monetary Authority (HKMA) announced that it had partnered with the Bank of Thailand, the UAE Central Bank, the People’s Bank of China (PBoC) and the Innovation Center of the Bank for International Settlements in Hong Kong. work on the m-CBDC bridge, with the aim of creating a cross-border payments system using distributed ledger technology.

As the mainland economy continues to strengthen, the demand for e-CNY cross-border exchange will increase, while Hong Kong can play its current advantage as a major global intermediary and explore opportunities to become a platform for trading. Important transit for e-CNY’s overseas exploration, according to the report.

“Currently, the application of blockchain in international trade is primarily focused on documentation, not payment. The development of CBDCs, including e-CNY, and the establishment of the m-CBDC bridge offer practical and practical solutions to foster the internationalization of the renminbi, â€Wong said.

The think tank also recommended that Hong Kong explore more use cases for wholesale CBDCs in the financial sector, for example by examining how to integrate CBDCs into the existing central clearing and settlement system in Hong Kong to improve the efficiency of payments in share exchanges.

The think tank said the m-CBDC bridge can be linked to other mechanisms such as stock exchanges and blockchain trading platforms, which could give Hong Kong the potential to act as a bridge between continental and international capital flows.

To promote e-HKD cross-border retail use cases, the foundation recommends that HKMA cooperate with PBoC to launch a dual currency digital wallet featuring digital e-CNY and e-HKD to facilitate cross-border payments. The HKMA announced in June that it would study the feasibility of using e-HKD for retail transactions.

This wallet could be tested first in the Greater Bay Area Guangdong-Hong Kong-Macao, with a currency exchange function to facilitate the conversion between e-CNY and e-HKD, and a restriction on available cities, the balance maximum, spending limit or application. scenarios to minimize the risk of such a pilot program. Cross-border application of CBDCs will help promote capital flows within the urban area.

“The emergence of e-HKD does not only indicate greater payment efficiency. This means that a new fintech ecosystem will develop in the future, â€Wong said. “More start-ups can participate in the business without being restricted by the existing e-commerce and payment ecosystems in Hong Kong. This can bring more transparency, standardization and innovation to customers in the consumption of financial services. “

The think tank said Hong Kong should explore implementation strategies to expand the e-HKD retail use case, simple use cases such as bill payments, public transport, government grant payments and the digital payment option for foreign tourists, to complex use cases such as health insurance claims and bond coupon payments.

At the political level, Hong Kong should formulate a comprehensive digital financial development strategy and consider establishing a joint CBDC steering group, the foundation said.

DAILY CHINA / ASIA INFORMATION NETWORK