China’s Hong Kong Special Administrative Region will test a digital version of its dollar as early as this year, with a view to possible rollout. The territory is trying to catch up with those already launching central bank digital currencies, including the People’s Republic with its digital yuan project.
Digital Hong Kong dollar trials planned for Q4
Hong Kong intends to start testing a currency called e-HKD, a digital incarnation of the Hong Kong dollar, in the remaining months of the year. The trials will be facilitated by passing legislative amendments and building the necessary digital infrastructure to support the project, the Hong Kong Monetary Authority (HKMA) announced, quoted by the South China Morning Post.
The pilot phase comes after consultations conducted to gather feedback on potential demand, privacy aspects and other issues that may arise around the issuance of a central bank digital currency (CBDC). Howard Lee, deputy chief executive of the HKMA, which acts as a central bank, explained:
While there may not be an imminent use case for e-HKD, given the findings of our study and feedback from market consultation and international development, HKMA will begin to pave the way to the implementation of e-HKD and will launch e-HKD in the future.
The senior official also noted that many jurisdictions are already considering the launch of CBDCs. Participants in consultations held by the banking authority expressed concerns that Hong Kong is lagging behind and needs to catch up with the international trend.
Trials will involve selected banks, payment providers and technology companies. These entities will examine the use of digital currency among their employees and a small number of customers, Lee detailed. “The purpose of introducing e-HKD is to provide more choice to the customer,” added the deputy general manager. He also pointed out that this decision will not affect Hong Kong’s three note-issuing banks.
HKMA will define a schedule for the launch of e-HKD after the tests
After the pilot phase, the Hong Kong Monetary Authority will set the launch schedule for e-HKD, said Colin Pou, executive director of financial infrastructure at HKMA. The regulator first announced the CBDC plan in June 2021, as part of the fintech 2025 strategy. A white paper was published in October and the consultations ended in May.
Dozens of central banks around the world have studied digital currencies and taken steps to create their own. The People’s Bank of China (PBOC) has launched pilot programs for its digital yuan (e-CNY) in a number of cities and recently announcement extension of the pilot area in four of them at the provincial level.
Hong Kong also carried out small-scale tests with e-CNY this year, Howard Lee revealed earlier this month. Last summer, the region’s financial authorities announced that they would link the digital yuan to its national payment system. Apart from its cooperation with the PBOC, the HKMA also works with the central banks of Thailand and the United Arab Emirates on cross-border CBDC payments.
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