September 21, 2022
HONG KONG – The Hong Kong Monetary Authority will adopt a three-stage approach to prepare for the possible eventual implementation of the digital Hong Kong dollar (e-HKD) – an event that the city’s banking regulator said is years away.
The policy is outlined in the HKMA’s position paper, released on Tuesday, regarding the retail central bank digital currency (CBDC).
In the first stage, the HKMA will conduct foundation work in the fourth quarter of this year regarding the technology and legal aspects of the e-HKD, including formulating a system development plan, developing a two-tier architecture, as well as identifying and examining areas to prepare for legislative amendments, with a view to enabling the issuance of a digital form of fiat currency with legal-tender status in Hong Kong.
The HKMA will conduct the second stage simultaneously. This stage concerns the research of use case scenarios, as well as the application, implementation, and design issues relating to the e-HKD.
The HKMA expects the legislative amendment work and pilot trials to take years to complete
Among various pilot trials, the HKMA will conduct a trial of whether the e-HKD can be accessed via an e-wallet app; therefore, “the HKMA will be in close collaboration with various stakeholders such as banks, payment services providers and technology companies to gain actual experience in areas of network security, privacy protection and customer satisfaction,” HKMA Deputy Chief Executive Howard Lee Tat-chi said in the Tuesday press conference.
There is no definite timetable for the full launch of the e-HKD, which will depend on the progress of the first and second stages, as well as the pace of local and international market development.
The HKMA expects the legislative amendment work and pilot trials to take years to complete. It also reiterated the issuance of the e-HKD will not replace the paper currency in circulation.
“As Hong Kong’s central banking institution, we will ensure that Hong Kong continues to play a leading role in the global financial landscape by getting ourselves ready as best we can in terms of CBDC and by providing the right soil for growing innovative ideas,” HKMA Chief Executive Eddie Yue Wai-man said in an HKMA statement on Tuesday.
Since the HKMA launched the study of the potential e-HKD in June 2021, two rounds of market consultation, one on high-level technical design and one on key policy and design issues, were conducted.
Seventy-five responses were received during the consultation. Respondents are overall supportive of the e-HKD initiative, saying it has the potential to make payments more effective while supporting the digital economy. Some other respondents are concerned about the issues of privacy protection, legal considerations and use cases.
Based on the opinions, the HKMA will adopt a holistic approach regarding the e-HKD by striking a balance between privacy protection and compliance, achieving the highest level of cybersecurity, and the e-HKD will be made interoperable with other payment systems.