Hong Kong launches pilot CBDC program

On May 18, the Hong Kong Monetary Authority (HKMA) officially initiated the e-HKD Pilot Program, a significant project under its ‘three-rail’ approach.

This development is seen as a strategic progression towards a potential introduction of a retail Central Bank Digital Currency (CBDC), or e-HKD, in the future. At this stage, HKMA has not yet reached a final decision on whether or not to launch the e-HKD officially.

16 companies, comprised of entities from the financial, payment, and technology sectors, have been selected to participate in the first set of pilot studies 2023. These pilot studies will be conducted to explore potential applications across six different categories. These categories include comprehensive payment services, programmable payment systems, offline payment options, tokenized deposit mechanisms, Web3 transaction settlements, and tokenized asset settlements.

The e-HKD Pilot Programme is a crucial initiative under the second rail of the HKMA’s three-rail approach. It’s designed to explore the potential viability of a CBDC. Through the program, the HKMA will work hand in hand with multiple stakeholders to study the potential use cases of the e-HKD, as well as the challenges and concerns related to its implementation and design. The knowledge and experience acquired from each pilot study will broaden HKMA’s understanding and fine-tune its approach toward the potential launch of the e-HKD.

The official commencement of the pilot program was marked by an event attended by senior representatives from the 16 chosen companies. These firms used the event as a platform to outline the major features of their proposed use cases. Over the coming months, the HKMA will be actively involved with these firms, supervising the pilot studies and tracking their progress.

While the outcomes of the pilot studies are likely to change over time, the HKMA has expressed its intention to share the key findings with the public during Hong Kong FinTech Week 2023. The HKMA also anticipates conducting additional pilot studies with the industry.

In addition to the pilot program, the HKMA plans to set up a CBDC Expert Group to bolster further collaboration between the government, industry, and academia in CBDC research. This group will comprise esteemed academics from local universities who will offer their expertise to help guide Hong Kong’s research into critical policy and technical issues surrounding CBDC. Some of these issues include privacy protection, cybersecurity, and interoperability.

Eddie Yue, the Chief Executive of the HKMA, expressed his enthusiasm about the commencement of the e-HKD Pilot Programme. He emphasized that while the HKMA hasn’t made a definitive decision about the e-HKD’s introduction, the pilot program represents an excellent opportunity for collaboration and innovation between the HKMA and the industry.

Mr. Yue expressed gratitude for the industry’s active involvement in the pilot studies and anticipation for the results. He also welcomed the participation of academic experts in this endeavor, highlighting the importance of a government-industry-academia collaboration in CBDC research to ensure the pertinence of research efforts and to transform these outcomes into feasible business opportunities.