Hong Kong’s central bank, the Hong Kong Monetary Authority (HKMA), has announced the commencement of the second phase of its e-HKD pilot program and extended an invitation to industry participants to propose potential use cases for the central bank digital currency (CBDC). This initiative aims to further explore the possibilities of a digital Hong Kong dollar and assess its potential applications within the region.
The second phase of the e-HKD pilot, unveiled on March 14, is geared towards investigating the potential of a digital Hong Kong dollar with a focus on areas such as programmability, tokenization, and atomic settlement. The HKMA intends to explore new use cases for the e-HKD while revisiting promising applications identified during the first phase, which concluded in October 2023. The initial phase successfully tested the e-HKD for various domestic retail purposes, including programmable payments, settlement of tokenized assets, and offline transactions.
The upgraded e-HKD sandbox will benefit from Project Ensemble, a recently launched initiative focused on wholesale CBDCs. This collaboration aims to accelerate the development and testing of use cases for participants while examining interoperability between the e-HKD and other forms of digital currency. The e-HKD sandbox infrastructure will play a central role in integrating digital currency into Hong Kong’s financial market.
The second phase of the e-HKD pilot is expected to run until mid-2025, with organizations invited to submit applications by May 17. Participants will have the opportunity to test and evaluate proposed use cases, with criteria including innovation, impact on consumer experience, readiness for market testing, compliance with regulations, and maximizing the use of e-HKD in Hong Kong.
Key players from various sectors, including major financial institutions and payment firms, are expected to participate in the investigation. Notable participants from the first phase included Alipay, Bank of China, HSBC, Hang Seng Bank, China Construction Bank, Industrial and Commercial Bank of China, Mastercard, Visa, Boston Consulting Group, and ZA Bank.
The e-HKD pilot program, launched in November 2022 as part of the HKMA’s “Fintech 2025” strategy, aims to evaluate the commercial viability of an in-house CBDC. Research on Hong Kong’s CBDC places the region among over 100 jurisdictions globally exploring the potential advantages of CBDCs, highlighting a growing recognition of digital currencies’ capacity to enhance financial systems’ efficiency, security, and inclusivity.
As the e-HKD pilot progresses, the knowledge gained will not only strengthen Hong Kong’s financial framework but also contribute to a broader global understanding of CBDCs. The results of this pilot have the potential to influence the adoption and regulation of digital currencies worldwide, setting precedents for future endeavors in digital finance.