Hong Kong’s Financial Services and Treasury secretary has indicated that the autonomous zone is open to collaborating with the People’s Bank of China (PBoC) and its ‘Digital Yuan’ project.
Christopher Hui made the comments during a question and answer session in the Hong Kong Legislative Council meeting on October 21, when asked for an update on various matters relating to the research and development of a Central Bank Digital Currency (CBDC) by the Hong Kong Monetary Authority.
Hui was asked whether the HKMA had looked into the potential benefits and drawbacks that might come about from the development of China’s ‘Digital Yuan’. The Legislative Council also queried whether Hong Kong was being considered as the first trial city outside of mainland China to trial the upcoming CBDC..
The PBoC has been testing its Digital Currency Electronic Payment (DCEP) this year and has made major strides with testing among private businesses and banks as well as a public trial that was conducted in Shenzhen last week which saw nearly 50000 people make use of Digital Renminbi (RMB) that was distributed in a lottery style giveaway. Nearly two million people had originally signed up to take part in the week-long test.
Research well underway with Project LionRock
As Hui pointed out in his reply to the council, the HKMA has been conducting research into the potential use cases of a CBDC. In 2017 it began ‘Project LionRock’ and research findings established that Hong Kong had already established efficient retail payment infrastructure and services. It was determined that the application of a CBDC would be better used for wholesale and cross-border payments.
In order to further explore this application, the HKMA and Bank of Thailand began a joint study that was dubbed ‘Project Inthanon-LionRock’ to test the possibilities of cross-border payments. Phase 2 of the study is underway which involves trials of cross-border trade payments between banks and corporates from both countries.
‘Digital Yuan’ collaboration possible
While its own research and testing of a CBDC is underway, the HKMA is keeping tabs on the various research and trials being conducted by different Central Banks around the world.
The PBoC’s DCEP programme is being closely monitored as well and Hui believes there is major potential for beneficial collaboration between the two states.
“If the DCEP being developed by the PBoC can be applied to cross-boundary payment, it would further promote the mutual connectivity between the Mainland (including the Guangdong-Hong Kong-Macao Greater Bay Area) and Hong Kong. The Government and the HKMA will continue to maintain communication, and explore the possibility of collaboration with the PBoC,” Hui said.
The Treasury secretary added that the Hong Kong Financial Services Development Council has established a working group to further explore how the state could potentially benefit from the ‘Digital Yuan’ – if and when testing begins for cross-border functionality.
“We have been paying attention to the developments of the PBoC’s DCEP. We understand that currently, the trial of DCEP is primarily used for retail payments in the Mainland. The PBoC is also conducting DCEP trials in selected cities in the Mainland. In the event that the PBoC would like to explore the use of DCEP in places outside of the Mainland, including Hong Kong, the Government and the HKMA will actively respond and collaborate. We will also continue to explore with the industry and Mainland authorities on the enhancement and expansion of channels for two-way flow of cross-boundary RMB funds.”