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Hong Kong’s central bank’s “cutting-edge” digital currency pilot improves blockchain credentials and boosts international financial center status, according to HKMA’s Yue.
Hong Kong’s decision to implement a wholesale central bank digital currency (wCBDC) pilot will benefit its status as an international financial center while putting it on the global map for issuing deposits and digital assets , as well as attracting talent and market players to the sector. according to Eddie Yue Wai-man.
“We have always been at the forefront of blockchain evolution, including CBDCs,” said Yue, CEO of Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, said in an interview with The Post. The wCBDC pilot project will make Hong Kong a benchmark for the latest developments in digital currencies, he added.
“I think we are one of the first to move forward with the actual implementation of a wholesale CBDC, as well as a tokenized asset and deposit environment,” Yue said.
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Central banks around the world have been moving towards innovative future types of money on digital networks, aligning with the vision of the “unified ledger” set out by the Bank for International Settlements (BIS) last June.
A unified ledger combines central bank and commercial bank currency with other assets into common digital infrastructures, enabling any transaction to be instantly paid, cleared and settled through tokenization, smart contracts and programmability.
A wCBDC will be at the heart of such a system, as the central bank currency used for interbank settlement will provide trust and additional functionality enabled by tokenization.
Agustin CarstensManaging Director of the BIS, said he was “heartened” to see the HKMA’s new wCBDC project “supporting the development [of] its tokenization market”.
The ongoing initiative appears to “align well with the vision of a unified ledger where a wholesale CBDC sits at the heart of the system, complemented by token deposits from the regulated banking system,” Carstens said in a sent statement by email to the Post.
On Thursday, the HKMA unveiled its wCBDC plan, dubbed “Project Ensemble”. In this plan, the HKMA will test an ecosystem including tokenized deposits, financial products and real-world assets using distributed ledger technology and central bank currency for settlement purposes.
Agustin Carstens, Director General of BIS. Photo: Dickson Lee alt=Agustin Carstens, Director General of BIS. Photo: Dickson Lee>
The story continues
The de facto central bank will set up what is called a sandbox to provide a closed loop for a select group of participants to test their innovations – from concepts to trading and settlement. The sandbox is expected to officially start by June.
It will also form an “architecture community” to develop common standards.
Some banks, technology companies and digital asset players have announced their participation in the project. These include Hashkey Group, one of the first licensed cryptocurrency exchanges in Hong Kong, HSBC and its subsidiary, Hang Seng Bank, and Standard Chartered.
Other companies such as Microsoft and Ant Group’s Digital Technologies unit will join the community, according to sources familiar with the matter, who requested anonymity.
The latest project follows other HKMA initiatives last year, such as testing a retail CBDC, e-HKD, and a consultation paper on stablecoins.
“[The HKMA,] “The BIS and most central banks view tokenization as an important part of the future financial market,” Yue said. “The sooner you get there, provide the infrastructure and environment for institutions to issue bonds, funds or real-world assets, [the faster] they will come to you.
Last November, the Bank of Korea launched a pilot program for its Retail CBDC which allowed 100,000 selected South Korean citizens to use deposit tokens to purchase goods. In recent years, the Reserve Bank of India has also introduced the concept of e-rupee.
“Asia is at the forefront of CBDC work, given its high degree of digitalization and vibrant fintech ecosystem, including in payments,” Carstens said. This progress is based on “a better understanding of how technological advances can be harnessed to build a more efficient, transparent and inclusive financial system that benefits society and citizens,” he added.
The HKMA is considering a few use cases in its wCBDC project, which are expected to address some issues in the current market, where investment options are limited, transaction costs and service fees are high, and settlement processes are lengthy.
Yue said the Hong Kong government would issue more token bonds, which could, in the future, go through the blockchain platform. He added that the settlement cycle has already been reduced from five days for previous issues to one day.
Following the e-HKD trial last May, the HKMA plans to roll out a second phase to examine more “compelling” use cases, with a focus on programmability, atomic settlement and tokenization, Yue said.
On the multi-country CBDC project “mBridge”, the HKMA is actively working with the People’s Bank of China and the central banks of Thailand and the UAE to prepare for the launch of a viable product.
These measures strengthen “Hong Kong’s international status” and place the city “on the most progressive front to show that we are on top of global trends,” Yue said.
“It’s very important at this point, to tell the story of Hong Kong.”
This article was originally published in the South China Morning Post (SCMP), the most authoritative voice in reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP application or visit the SCMP Facebook And Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.
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