Hong Kong launches e-HKD pilot programme, with 16 companies to test digital currency for public use in shops, restaurants

Eddie Yue Wai-man, CEO of the Hong Kong Monetary Authority, hosted a ceremony on Thursday evening to mark the start of an e-HKD pilot programme
Some 16 banks and payment companies – including the three note-issuing banks HSBC, Standard Chartered and BOCHK – will take part in the trial

Digital currencies

Enoch Yiu

Published: 5:30pm, 18 May 2023

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Hong Kong has launched the trial run for a digital version of the local currency, called the e-HKD, paving the way for a virtual coin the public will be able to use to shop, dine out and make money transfers.

Some 16 banks and payment companies will select small groups of their clients to test six potential uses for the e-HKD – online payments, payments in shops and restaurants, collecting government payouts, tokenised deposits, tokenised asset settlement and Web3 trading and clearing, according to a statement by the Hong Kong Monetary Authority (HKMA).

Eddie Yue Wai-man, the CEO of the HKMA, hosted a ceremony on Thursday evening to mark the start of the e-HKD pilot programme at the de facto central bank’s office in Central.

“The HKMA considers it the right time to explore a digital currency as residents have become more willing to use online banking services in recent years,” said Howard Lee, deputy CEO of the organisation, in a media briefing before the ceremony.

A crop of eight branchless, virtual banks has been operating in Hong Kong for the last three years, while the coronavirus pandemic reinforced the digital transition.

It’s the right time for Hong Kong to consider a centralised digital currency, says Howard Lee, deputy chief executive of the Hong Kong Monetary Authority (HKMA). Photo: Jonathan Wong

Hong Kong’s three note-issuing lenders, HSBC, Standard Chartered Bank and Bank of China (Hong Kong), will take part in the trial.

The de facto central bank will issue a limited amount of the digital money in a controlled experimental environment called a sandbox for the participating companies to test its infrastructure, security and other operational issues.

The test run “serves as a tremendous opportunity for the HKMA to collaborate with the industry in exploring innovative use cases and maximising our readiness for a potential e-HKD,” Yue said at the launch ceremony.

HSBC, the largest lender in the city, will take part in two pilot projects, testing e-HKD payments on the campus of the Hong Kong University of Science & Technology (HKUST) and simulating tokenised deposit transactions in collaboration with Visa.

Luanne Lim, CEO of HSBC Hong Kong, said the pilot scheme “will help prepare Hong Kong for a new form of money on the horizon and strengthen our competitiveness in the digital economy.”

The HKMA will announce the results of the pilot in a report in November, Lee said. The authority has not yet confirmed when the e-HKD will be fully rolled out.

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The HKMA joins many central banks worldwide that have introduced or are considering introducing a virtual currency. The Bahamas was first out of the blocks, launching a digital coin called the Sand Dollar in October, 2020, while mainland China has rolled out a number of pilot schemes for its digital yuan, the e-CNY.

“Globally, there are about 100 central banks studying digital currency. Hong Kong needs to, as it may need several years to develop a central bank digital currency,” Lee said.

The HKMA first mentioned the plan for a centralised digital currency in June 2021 as part of Fintech 2025, its plan to develop financial technologies. The authority issued a white paper in October 2021 and completed a one-month consultation in May last year collecting views about privacy and other concerns surrounding the launch of a digital coin.

Digital wallets are expected to surpass credit cards as the most popular electronic payment method in Hong Kong by 2025, according to a study by US financial technology company FIS released in March last year.

The digital wallets – Alipay, WeChat Pay, Tap & Go and Octopus – collectively attracted more than 4.7 million new users and 96,000 new merchants in Hong Kong by the end of 2021 as the pandemic encouraged people to shop online.

Alipay Financial Services (HK) is among the companies taking part in the e-HKD trial. Others include China Construction Bank (Asia), Standard Chartered, Boston Consulting and Mastercard Asia.

The e-HKD is just the retail side of Hong Kong’s central bank digital currency (CBDC). On an international level, the HKMA has been working on the “mBridge” project with the People’s Bank of China (PBOC), the central banks of Thailand and the United Arab Emirates, and the Bank for International Settlements (BIS) Innovation Hub Hong Kong Centre to study its use in settling international payments.

The PBOC said in September that an mBridge trial running from August 15 to September 23 saw 20 commercial banks transfer 150 million yuan (US$22 million) across 160 payments, while 80 million yuan of digital fiat was issued on the platform.