The Hong Kong Monetary Authority (HKMA) has initiated the second phase of its e-Hong Kong dollar (e-HKD) pilot program and is encouraging industry participants to apply and submit potential use cases for its central bank digital currency (CBDC).
On March 14, the HKMA announced the commencement of the second phase of the e-HKD pilot, aimed at exploring the potential of a digital Hong Kong dollar. The focus of this phase is to delve deeper into key areas identified in the first phase, where an e-HKD could offer value. These areas include programmability, tokenization, and atomic settlement. Additionally, the HKMA intends to explore new use cases that were not covered in the previous phase.
The central bank is urging market participants to apply, with the deadline for submissions set for May 17. The HKMA estimates that the second phase of the e-HKD pilot will run until mid-2025, allowing sufficient time for participants to test and evaluate their proposed use cases.
The financial regulator has also provided guidelines for those interested in participating in the pilot. Applications will be assessed based on the innovative and unique elements they bring, their impact on consumer experience, readiness for market testing, compliance with existing regulations, and how effectively they maximize the use of e-HKD in Hong Kong.
The CBDC project was launched in 2021 as part of Hong Kong’s “Fintech 2025” strategy. On June 8, 2021, the central bank published its CBDC plans, emphasizing its role in the government’s broader efforts to promote the adoption of digital finance in the special administrative region by 2025.
The central bank claims to have been conducting research on CBDCs since 2017 to understand their potential applications. The HKMA is currently intensifying its efforts to enhance Hong Kong’s preparedness to issue CBDCs at both wholesale and retail levels.
Prominent institutions, including payment processor Visa, participated in the e-HKD pilot. On November 1, Visa successfully completed its digital Hong Kong dollar pilot test with local banks HSBC and Hang Seng Bank. The pilot involved the tokenization of deposits, where money was minted on a blockchain ledger with the backing of a balance sheet.