Regulation News

Hong Kong Initiates Phase 2 of Its CBDC Pilot Program

The Hong Kong Monetary Authority (HKMA) is moving forward with phase two of its digital Hong Kong dollar (e-HKD) trial, inviting industry participants to submit potential use case proposals for its Central Bank Digital Currency (CBDC) by May 17. Launched as part of Hong Kong’s broader Fintech 2025 strategy, this initiative seeks to explore the implementation and benefits of a digital currency in enhancing financial infrastructure and services.

In this next phase, the HKMA is diving deeper into promising areas identified during the initial phase, focusing on programmability, tokenization, and atomic settlement functionalities of the e-HKD. Additionally, the authority aims to explore new applications not covered in the previous phase. Industry players are encouraged to apply, with a deadline set for May 17, to allow ample time for testing and evaluation of their proposed use cases.

Submissions will be evaluated based on their innovative or unique elements, potential impact on consumer experience, readiness for market testing, compliance with existing regulations, and their contribution to maximizing the use of e-HKD in Hong Kong. The CBDC project, initiated in 2021, is a critical component of Hong Kong’s strategy to foster digital financial inclusion and innovation by 2025. With ongoing research since 2017, the HKMA is keen on understanding the potential applications of CBDCs and strengthening Hong Kong’s readiness for issuing both wholesale and retail CBDCs.

Notably, prominent institutions like Visa have participated in the e-HKD trials, conducting pilot tests with local banks HSBC and Hang Seng Bank to explore tokenization of deposits on blockchain with backing from bank balance sheets. This move signifies a significant step towards realizing the potential of digital currencies in transforming financial services and infrastructure in Hong Kong.

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