Oriol Caudevilla says collaborative projects allow city to strengthen its status as the world’s most important financial center
The Hong Kong Monetary Authority (HKMA), together with the Bank of Israel (BOI) and the Bank for International Settlements (BIS) Innovation Hub Hong Kong Centre, announced the release of a joint report titled “Project Sela – Accessible and secure retail.” CBDC Ecosystem,” at a launch event in Tel Aviv on September 12. This is the first-ever collaboration project between the HKMA and BOI on the fintech front.
According to the HKMA press release on this topic, the Sela project demonstrated the technical feasibility of a retail central bank digital currency (CBDC) architecture that can promote competition and innovation in digital payments by enabling for non-bank payment intermediaries to connect directly to the CBDC ledger of the Central Bank. Leveraging distributed ledger technology, a proof-of-concept prototype was developed to show how the technical implementation of the proposed architecture can integrate stringent cybersecurity, legal, and policy requirements.
As Howard Lee, Deputy Managing Director of the HKMA, said, “This project has provided valuable practical insights into the cybersecurity, technical and policy aspects of implementing a retail CBDC. Although the HKMA has not yet made a firm decision on whether and when to introduce an e-HKD in Hong Kong, the results of the Sela project will inform our ongoing exploration. We hope that the Sela project will also benefit other central banks in their own evaluations of different retail CBDC architectures.
An e-HKD is a CBDC. CBDCs have been called the “future of payments,” or even “the future of money,” and not without reason. Hong Kong, once again, is at the forefront.
A CBDC is a new form of publicly available central bank money, accepted as a means of payment, legal tender, a secure store of value by all citizens, businesses and government agencies. There are many possible motivations behind CBDCs: they can replace physical notes; they can be used to improve financial stability as a monetary policy tool, promote financial inclusion, combat financial crime, improve payment efficiency and reduce intermediary risks, etc.
However, while the introduction of CBDCs promises many efficiencies and new features, it is important to keep in mind that it alone does not solve all of the problems in payments – particularly cross-border payments. –.
The Sela project is one of several CBDC projects that the HKMA has participated in in recent years, such as the digital yuan (its testing in the special administrative region), the mBridge project and the electronic Hong Kong dollar (e-HKD), as I have explained in several articles published in China Daily Hong Kong Edition.
Indeed, the HKMA began researching CBDCs under ProjectInthanon-LionRock in 2017 (the LionRock project involved the HKMA and the Bank of Thailand) and has since collaborated with other central banks to expand their knowledge of CBDCs wholesale.
The LionRock project was renamed mBridge, becoming a joint project of the PBOC, HKMA, Bank of Thailand, Central Bank of the UAE and BIS Innovation Hub Hong Kong Centre. This is a closely watched experiment as it is the only large-scale use of blockchain to settle international payments.
The HKMA is also working on its own CBDC, e-HKD.
In related news, Eddie Yue Wai-man, director general of the HKMA, held a ceremony on May 18 to mark the start of its e-HKD pilot program, with 16 companies to test the digital currency for use public in stores and restaurants. and money transfers.
A total of 16 banks and payment companies will select small groups of customers to test six potential uses of e-HKD: online payments; payments in stores and restaurants; collect government payments; symbolic deposits; settlement of token assets; and Web3 trading and clearing, according to a statement from the HKMA. The program is a key part of Rail 2 as part of the HKMA’s three-rail approach, paving the way for the eventual implementation of a retail CBDC, i.e. e-HKD, in a future program.
The e-HKD will be an electronic version of a banknote, and the mechanism for issuing the digital currency will be the same as that of physical banknotes under the currency parity system, without affecting the monetary base . The current peg of the Hong Kong dollar to the US dollar will remain in place.
This announcement follows the Fintech Strategy 2025 unveiled in June 2021 by the HKMA, the second strategic pillar of which was for the HKMA to strengthen its research work to increase Hong Kong’s readiness to issue CBDCs at the wholesale and retail levels. .
Fintech 2025 appears consistent with Hong Kong’s current role as a global center for financial technology and commerce. Indeed, Hong Kong’s future is not so much about remaining the gateway to the mainland, but about retaining and strengthening its current status as the world’s most important financial center by adopting economic initiatives that are relevant to the Guangdong development plan. -Hong Kong-Macao Greater Bay Area.
In this sense, Fintech 2025 aligns with the 14th Five-Year Plan (2021-25) for National Economic and Social Development and the long-term goals until 2035, which recognize Hong Kong’s economic potential at the national level.
Hong Kong will not walk alone in this area, as the fintech scene on the Chinese mainland is also growing very quickly. In this sense, Hong Kong (and Macau, to a lesser but very relevant extent) can undoubtedly play a vital role in the Chinese fintech scene, given Hong Kong’s current position as one of the most important financial centers in the world and given that its fintech industry has the potential to grow much faster now that it can take advantage of its involvement in the Great Bay project.
In summary, Hong Kong is not only in an ideal position to leverage the future rollout of the digital yuan to strengthen its status as one of the world’s most important financial centers, but it is also in an ideal position to explore the possibility of an e-HKD. thus, showing once again that the HKMA and therefore Hong Kong are at the forefront of the CBDC race. At the same time, Hong Kong, through the HKMA, is in an ideal position to continue exploring more CBDC projects such as the Sela project.