Hong Kong Intensifying Its Efforts To Develop Central Bank Digital Currency e-HKD in 2021

On April 18th, sources reported that Hong Kong is intensifying its efforts to develop its own central bank digital currency e-HKD this year. Regulatory authorities have deployed the implementation work to Hong Kong’s banks and left the option of adopting centralized or decentralized forms to banks. The source stated that at least one large bank is inclined to develop electronic Hong Kong dollars on licensed blockchains, and unlike the digital renminbi launched by the People’s Bank of China, the architecture of the CBDC launched in Hong Kong has not been determined by the central government.

Insider: Hong Kong regulatory authorities have deployed the implementation of CBDC to banks in Hong Kong

Introduction

Hong Kong has been making significant strides towards the development of its own central bank digital currency (CBDC) in recent years. On April 18th, reports emerged that Hong Kong is taking efforts to develop the e-HKD this year. The regulatory authorities have entrusted the task of implementation to Hong Kong’s banks and given them the option of adopting centralized or decentralized forms. This article will delve into the details of this development and explore the significance of this move.

The Development of e-HKD

The Hong Kong Monetary Authority (HKMA) has been exploring the development of e-HKD since 2017. In November 2020, it announced a series of measures to facilitate the development and adoption of CBDC. The HKMA initiated a study on collaboration with the People’s Bank of China (PBOC) to explore the potential of using CBDC for cross-border payments. It also joined the Global CBDC Challenge to promote the application of CBDC in cross-border payments and trade settlements.

Regulatory Authorities’ Deployment of Implementation Work

The April 18th report stated that the regulatory authorities have assigned the task of implementation to Hong Kong’s banks. The banks have been given the option of adopting centralized or decentralized technologies to develop the e-HKD. One large bank is already inclined towards developing electronic Hong Kong dollars on licensed blockchains. The architecture of the CBDC launched in Hong Kong differs from that of the digital renminbi launched by the PBOC. The CBDC launched in Hong Kong has not been determined by the central government.

Centralized vs. Decentralized Forms of e-HKD

Centralized and decentralized forms are the two dominant approaches to developing CBDC. A centralized system involves the creation of digital currencies that are managed and controlled by a central authority, such as a country’s central bank. The digital currencies are issued through a trusted intermediary, and transactions are recorded on a centralized ledger. In contrast, a decentralized system involves the use of a distributed ledger technology (DLT), in which transactions are recorded on a blockchain that is distributed across a network. The system is trustless, and there is no central authority that controls the issuance of the digital currency.

Significance of CBDC Development in Hong Kong

The development of e-HKD holds significant potential for Hong Kong’s economy. The use of CBDC can streamline the financial system and help reduce costs associated with intermediaries. It can also improve financial inclusion by enabling easy access to digital financial services, especially for the unbanked or underbanked population. For the wholesale market, CBDC can facilitate cross-border payments and trade settlements, making them faster, cheaper, and more efficient.

Challenges in Developing e-HKD

The development of e-HKD poses several challenges for Hong Kong’s regulatory authorities and banks. The use of CBDC raises issues related to data privacy, cybersecurity, and regulatory compliance. The balancing act between privacy and transparency is a major concern. The regulatory authorities need to ensure that the CBDC system is secure and resistant to malicious attacks. They also need to ensure that the banks adopt consistent standards to facilitate interoperability and reduce fragmentation.

Conclusion

The development of e-HKD is a significant step towards the digital transformation of Hong Kong’s financial sector. Its success will depend on the ability of regulatory authorities and banks to address the challenges associated with it. The adoption of CBDC will not only streamline the financial system but also drive financial innovation and strengthen Hong Kong’s position as a global financial hub.

FAQs

1. Is e-HKD similar to digital renminbi?
– No, the architecture of the CBDC launched in Hong Kong differs from that of the digital renminbi launched by the People’s Bank of China.
2. What are the challenges in developing e-HKD?
– The challenges include issues related to data privacy, cybersecurity, and regulatory compliance. The regulatory authorities need to ensure that the CBDC system is secure and resistant to malicious attacks.
3. What are the potential benefits of the development of e-HKD?
– The potential benefits include a streamlined financial system, financial inclusion, and improved cross-border payments and trade settlements.