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Hong Kong has kicked off a project to explore issuing its own digital currency.
Yesterday, the Hong Kong Monetary Authority announced the launch of a 12-month study, similar to those already undertaken in other states, to research the implications of issuing a CBDC.
The aim is to publish the results of this research in 12 months’ time, examining consumer needs, data privacy, anti-money laundering requirements and other legal and policy considerations.
At the same time, it is conducting another conceptual study with Hong Kong’s BIS Innovation Hub to examine the potential of a digital currency on retail sales.
Hong Kong is now an integral part of China, but it still has its own currency, the Hong Kong dollar (HKD). In fact, it also has its own kind of central bank, the local monetary authority called the Hong Kong Monetary Authority (HKMA), which is independent of China’s central bank, the People’s Bank of China (PBoC).
For example, over the past five years, the Hong Kong dollar has not been stable against the Chinese Yuan (CNY), falling from CNY 0.9 in late 2016 to CNY 0.8 in March 2018, then rising above CNY 0.9 in May last year and falling back to just above CNY 0.8 recently.
Given that the Hong Kong dollar seems destined to survive, without being absorbed by the Chinese national currency, it is not at all strange that the HKMA has decided to explore the possibility of issuing a natively digital version of it, provisionally called e-HKD.
Hong Kong will work with China to issue its own digital currency
Moreover, not only is Hong Kong a major financial centre, but it is a much more open market to foreign countries than the rest of China.
The HKMA has stated that it will cooperate with the Chinese central bank in the technical testing of e-CNY in Hong Kong, in order to provide a convenient means for cross-border payments.
The PBoC itself has actually been testing a natively digital version of China’s currency, called the DC/EP, for more than a year now, but these tests have not yet been completed to the best of our knowledge, and no date is known for the eventual release of this CBDC.