<p>Hong Kong’s Monetary Authority (HKMA), the Chinese territory’s central bank, recently released a report following the completion of phase one of its central bank digital currency (CBDC) pilot, highlighting the potential benefits of a retail CBDC, commonly referred to as e-HKD (digital Hong Kong dollar).</p><h2 id="header-0">Undecided on full implementation</h2><p>In a <a href="https://www.hkma.gov.hk/eng/news-and-media/press-releases/2023/10/20231030-3/" rel="noopener noreferrer nofollow">press release</a> published by the HKMA on Monday, the authority clarified that the report underscores that while a retail CBDC could bring value to the payments ecosystem and unlock new economic transaction possibilities, in-depth investigation and evaluation are essential before considering large-scale implementation.</p><p>At this stage, Hong Kong’s central bank has not committed to introducing an e-HKD, but the report sheds light on the prospects and challenges associated with such a move. The region has been signaling its intent to position itself as a hub for virtual assets, evident in the regulatory framework introduced in June and the granting of licenses to crypto trading platforms in August.</p><p>Project e-HKD, initiated by the HKMA in 2021, is a significant step toward assessing the feasibility of a digital Hong Kong dollar. The pilot program was launched in November 2022 as part of the HKMA&#39;s “<a href="https://www.hkma.gov.hk/eng/news-and-media/press-releases/2021/06/20210608-4/" rel="noopener noreferrer nofollow">Fintech 2025</a>” strategy. However, the HKMA remains cautious, as reflected in the comments of HKMA CEO Eddie Yue earlier this month. Yue told the <a href="https://medium.com/&#64;coinness.gl/further-trials-required-before-determination-of-ehkd-launch-date-bc44412b1455" rel="noopener noreferrer nofollow">South China Morning Post</a> that the central bank is still waiting for greater clarity when it comes to the technological, legal and societal aspects of full implementation.</p><h2 id="header-1">Three core attributes identified</h2><p>The report identifies three primary areas where an e-HKD could provide value: programmability, tokenization and atomic settlement. These attributes could lead to faster, more cost-efficient and more inclusive transactions. However, it’s essential to note that the 14 pilot programs conducted with 16 participating firms during phase one were executed on a small scale within a controlled environment.</p><p>The phase one review highlights that the true potential and prerequisites for implementing an e-HKD on a larger scale depend on market developments and further investigation. It acknowledges that minor issues identified during the pilot phase could become more prominent or even unacceptable in a production environment.</p><h2 id="header-2">Gearing up for phase two</h2><p>Phase one of the pilot program delved into various aspects, including full-fledged payments, offline payments, tokenized deposits, programmable payments and the settlement of Web3 transactions and tokenized assets. Hong Kong is now gearing up for phase two of the pilot, with plans to explore new use cases for an e-HKD and engage in more focused pilot initiatives. The goal is to understand how the e-HKD can facilitate innovative methods of transacting goods and services while maintaining financial stability.</p><p>The HKMA’s stance on a retail CBDC places it at the center of a global debate. While the U.S. remains undecided on the issue, with the topic becoming contentious in presidential elections, India has <a href="https://medium.com/&#64;coinness.gl/india-looks-to-boost-cbdc-with-1-million-users-in-3-months-37af70905571" rel="noopener noreferrer nofollow">forged ahead</a> with plans for a retail CBDC. Meanwhile, Thailand’s central bank<a href="https://medium.com/&#64;coinness.gl/thai-central-bank-collaborates-with-singapores-2c2p-on-cbdc-pilot-9acd968ca380" rel="noopener noreferrer nofollow"> commenced</a> a pilot project for a retail CBDC earlier this year.</p>

HKMA reflects on retail CBDC pilot phase one completion

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