Hong Kong has initiated a trial program for the digital yuan, which is the central bank digital currency (CBDC) of the People’s Bank of China (PBoC). This move by the Hong Kong Monetary Authority (HKMA) marks the first implementation of the CBDC outside of mainland China. The pilot program allows Hong Kong residents to conduct transactions from their digital yuan wallets, which can be funded through 17 retail banks using the Faster Payment System (FPS).
According to an announcement by the HKMA on May 17, this is the first instance of the system integrating with a CBDC through a major central bank. The Digital Currency Institute (DCI) facilitates the interoperability infrastructure between the FPS and the digital yuan, with the goal of enhancing cross-border payments, which is a key objective outlined in the roadmap of G20 countries.
The digital yuan pilot functions similarly to blockchain protocols and enables 24/7 payments. Eddie Yue, the chief executive of the HKMA, mentioned in the announcement that the e-CNY application and wallet will gradually gain additional features as the HKMA and PBoC collaborate to encourage more adoption by retail merchants. Currently, Hong Kong residents only need their mobile phone number to create an e-CNY wallet, which allows for cross-border payments but not person-to-person transactions.
However, the HKMA and DCI have plans to upgrade the e-CNY wallets to “higher tiers” through real-name verification. Additionally, they will facilitate corporate use cases for cross-border trade settlements in the future.
While CBDCs offer the potential for greater financial inclusion, there are concerns about their intrusive nature. In July 2023, Brazil’s central bank released the source code for its CBDC pilot, and within four days, people discovered the surveillance and control mechanisms embedded in the code, which allow the central bank to freeze or reduce user funds within CBDC wallets.
Currently, there are at least 140 countries worldwide working on CBDC pilots, with China’s digital yuan being one of the most advanced. The introduction of the digital yuan pilot in Hong Kong could potentially boost the usage of the yuan in the city, as the PBoC aims to encourage more merchant acceptance of the CBDC.
Source: Cointelegraph