Hong Kong steers towards the future with e-HKD pilot programme

The Hong Kong Monetary Authority (HKMA) has set a significant milestone in the financial sector by launching the e-HKD Pilot Programme. This programme is a collaborative effort involving 16 firms from various sectors such as finance, technology, and payment services to investigate the real-world applications of a potential retail central bank digital currency (CBDC), known as the e-HKD.

Emily Wong, fintech expert at the University of Hong Kong, said: “The e-HKD represents not just a leap, but a quantum jump in the financial industry’s approach to digitalisation and modernisation. This initiative is pivotal for incorporating digital currencies into everyday financial activities, heralding a new age for monetary transactions in Hong Kong.”

This pioneering venture, launched on 18 May 2023, demonstrates the HKMA’s commitment to modernising Hong Kong’s financial landscape. The initiative intends to investigate six critical areas: comprehensive payments, programmable payments, offline transactions, tokenised deposits, and the settlement of Web3 transactions and tokenised assets. These focal points are at the forefront of digital financial technology, paving the way for a more equitable and efficient monetary ecosystem.

Howard Lee, HKMA’s deputy chief executive, said: “Our vision with the e-HKD Pilot Programme is to examine and understand the various dimensions of implementing a retail CBDC in our diverse financial ecosystem. This is a step towards ensuring Hong Kong’s financial systems remain cutting-edge and inclusive.”

The e-HKD Pilot Programme aligns with the HKMA’s overall Fintech 2025 strategy, reflecting Hong Kong’s desire to maintain its position as a leading global financial hub. This programme is more than just a test of digital currency; it is a step forward in reimagining financial transactions and services for the city’s population and economic landscape.

Real-world application trials

One of the programme’s most notable accomplishments is its real-world application trials. Selected customers from the participating banks and payment companies were given the opportunity to use e-HKD for everyday activities such as shopping and dining. This phase provided invaluable insights into the usability and functionality of the digital currency, made possible by the participation of Hong Kong’s three major note-issuing banks: HSBC, Standard Chartered Bank, and Bank of China (Hong Kong).

Jonathan Liu, HSBC Hong Kong’s digital transformation officer, said: “Participation in the e-HKD Pilot Programme aligns seamlessly with our commitment to fostering digital innovation in financial services. Exploring the practical applications of e-HKD enables us to enhance our customer’s banking experience, propelling Hong Kong’s status as a leading global financial hub.”

Angela Tam, an e-HKD trial participant, said: “Using e-HKD for everyday transactions was simple and efficient. It’s fascinating to be a part of this technological advancement that has the potential to shape how we use money in the future.”

The HKMA announced the conclusion of Phase 1 of the programme on 30 October 2023, with the publication of the e-HKD Pilot Programme Phase 1 Report. The report revealed significant findings, particularly in the areas of programmability, tokenisation, and atomic settlement, highlighting the e-HKD’s potential to transform Hong Kong’s payment ecosystem. However, it was acknowledged that these findings were based on controlled, small-scale pilots, necessitating more extensive research to determine their applicability on a larger, real-world scale.

Building on these insights, the HKMA advanced the initiative by launching Phase 2 of the e-HKD Pilot Programme on 14 March 2024. This phase seeks to look deeper into the initial findings while also exploring new use cases that have not previously been addressed. An upgraded e-HKD sandbox, established under Project Ensemble, will facilitate this exploration, indicating a deliberate and phased approach to the possible implementation of a retail CBDC in Hong Kong.

The HKMA’s e-HKD Pilot Programme marks a significant step forward in the exploration and potential adoption of digital currencies in Hong Kong. By aligning with global trends, this initiative lays the groundwork for a new era of financial transactions marked by greater efficiency, security, and accessibility. As Hong Kong progresses through this exploratory phase, the results of this comprehensive programme are expected to make a significant contribution to the global narrative on digital currencies.