The Hong Kong Monetary Authority (HKMA) has decided to focus development of the e-HKD on wholesale applications because the central bank digital currency (CBDC) has stronger potential value in large transactions than in daily retail use.
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The city’s de facto central bank announced the decision on Tuesday after a second phase of e-HKD trials that tested its usability and efficiency in both retail and wholesale scenarios over the past year. A CBDC is a digital version of a fiat currency built using blockchain technology.
The e-HKD “is not the only single instrument that can be used [in retail cases],” said Howard Lee Tat-chi, deputy chief executive of the HKMA, at a media briefing. Merchants and individuals could use programmable deposits and perhaps stablecoins for transactions, he said, adding that a specific role for the e-HKD was “not very apparent”.
However, the digital currency was “free of credit risks and hence desirable to be used by financial institutions in large-valued transactions,” he said.
Financial institutions had used the e-HKD for wholesale interbank cross-border settlement and securities transactions, Lee said. The authority said it hoped to attract more large financial institutions and companies to join future e-HKD pilot projects.
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The HKMA did not give a concrete timeline on when the e-HKD would be applied at the wholesale level. The roll-out would depend on “the movement of advanced technology” and the different use cases that develop, as well as “the attitude of users towards central bank digital money”, Lee said.
“We are encouraged to see that the e-HKD has gradually been used in more wholesale applications by financial institutions,” said Eddie Yue, chief executive of the HKMA, in a statement. “We will continue to ensure Hong Kong is well prepared for the potential future extension of the e-HKD in retail scenarios.”