Hong Kong is taking another step forward in its efforts to integrate with China’s digital currency ecosystem. According to a senior official, the city will expand its pilot program of the e-CNY, or the digital yuan, to include more banks and payment platforms.
The e-CNY project is China’s ambitious plan to create a digital version of its national currency, the yuan. The project aims to enhance the efficiency and convenience of cross-border payments, as well as to support the internationalization of the yuan. Hong Kong, as a special administrative region of China and a global financial hub, has a significant role to play in the e-CNY project.
Hong Kong has been actively participating in the e-CNY project since its inception. In 2017, the Hong Kong Monetary Authority (HKMA) and the People’s Bank of China (PBOC) signed a memorandum of understanding to collaborate on the research and testing of the e-CNY. Since then, the two authorities have conducted several technical trials to explore the feasibility and interoperability of the e-CNY in cross-border scenarios.
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The e-CNY is a digital version of China’s national currency, issued and controlled by the People’s Bank of China (PBOC). It is not a cryptocurrency, but a legal tender that can be used for online and offline transactions. The PBOC has been testing the e-CNY in several mainland cities since 2019 and has also launched cross-border trials with Hong Kong and Macau.
One of the major achievements of the Hong Kong-China cooperation on the e-CNY project is the launch of a pilot program in December 2020, which allows Hong Kong residents to use e-CNY wallets to make purchases at designated merchants in Shenzhen. The pilot program is part of the Greater Bay Area (GBA) initiative, which aims to foster closer economic and social integration among Hong Kong, Macau, and nine cities in Guangdong province. The pilot program has received positive feedback from both consumers and merchants and has demonstrated the potential of the e-CNY to facilitate cross-border consumption and tourism in the GBA.
Another important milestone of the Hong Kong-China collaboration on the e-CNY project is the announcement of a joint technical testing in May 2021, which involves using the e-CNY for cross-border trade settlement between Hong Kong and mainland China. The joint testing aims to evaluate the technical feasibility and operational efficiency of using the e-CNY for trade finance and invoice verification, as well as to explore the regulatory and legal implications of using the e-CNY for cross-border transactions. The joint testing is expected to provide valuable insights and experience for further expanding the use cases and scope of the e-CNY in cross-border contexts.
Hong Kong’s involvement in the e-CNY project reflects its strategic position and unique advantages as a bridge between mainland China and the rest of the world. By participating in the development and testing of the e-CNY, Hong Kong can contribute to the innovation and advancement of digital currency technology, as well as to the promotion and adoption of the yuan as an international reserve and payment currency.
Hong Kong can also benefit from the opportunities and challenges brought by the e-CNY project, such as enhancing its financial inclusion and competitiveness, strengthening its anti-money laundering and counter-terrorism financing capabilities, and managing its financial stability and monetary sovereignty.
In May this year, Hong Kong announced that it had successfully completed the first phase of its e-CNY trial, involving six local banks and the Hong Kong Monetary Authority (HKMA). The trial tested the technical feasibility of using the e-CNY for cross-border payments between Hong Kong residents and mainland merchants.
Now, the city is ready to move on to the second phase of the trial, which will involve more banks and payment service providers, as well as more use cases and scenarios. According to Edmond Lau, deputy chief executive of the HKMA, the second phase will start in the fourth quarter of this year and last for about six months.
Lau said that the HKMA will work closely with the PBOC to ensure that the e-CNY trial meets the regulatory standards and requirements of both sides. He added that the e-CNY will not pose any threat to Hong Kong’s monetary system or financial stability, as it will only be used as a retail payment tool and not as a reserve currency.
The HKMA also stressed that the e-CNY trial will not affect Hong Kong’s status as an international financial center or its role as a gateway between China and the world. On the contrary, Lau said that the e-CNY will bring new opportunities for Hong Kong’s financial sector and enhance its competitiveness in the digital era.