Macroscope | Could a digital Hong Kong dollar undermine the local banking sector? HKMA must take note

The HKMA’s feasibility study must think through the impact of options for e-HKD issuance: will commercial banks take on the role, as they do now for physical banknotes, or will the Monetary Authority issue the digital currency itself?

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As Hong Kong joins others in exploring the use of a digital currency, there are more issues to consider than just technological and regulatory ones. Photo: Shutterstock

Published: 10:00pm, 15 Jun 2021Updated: 10:37pm, 15 Jun 2021

The Hong Kong Monetary Authority has set up a working group “to study the technology and regulatory issues related to an e-Hong Kong dollar”, said Eddie Yue Wai-man, the authority’s chief executive, on June 8. This is a timely move but there are more issues to consider than just technological and regulatory ones.

The HKMA, the city’s de facto central bank, “will have a conclusion in about 12 months”, Yue added. The central bank digital currency (CBDC) feasibility study was announced at the launch of fintech 2025, the HKMA’s wider fintech plan for Hong Kong for the next few years.

The challenge will be to craft an e-Hong Kong dollar (e-HKD) that will have popular appeal, tick the regulatory boxes but, crucially, won’t disrupt the business models of Hong Kong’s commercial banking sector.

Yue noted that “Hong Kong people, nowadays, are more willing to use digital banking services”, while HKMA deputy CEO Howard Lee stressed that “the e-Hong Kong dollar will just be an electronic version of a physical banknote”. This means the “mechanism of the issuance of e-Hong Kong dollars will be the same as the issuance of physical banknotes under the [Hong Kong currency’s US dollar] peg”, Lee said.

China’s official app for the digital yuan is seen on a mobile phone next to 100-yuan banknotes. Talks are ongoing between the HKMA and PBOC about the use of the digital yuan for cross-border payments. Photo: Reuters

In short, an e-HKD for use by Hongkongers in the domestic market might have popular appeal, given the receptiveness of Hong Kong people to digital banking services. It would presumably coexist with, but be distinct from, the e-yuan, the use of which in Hong Kong for cross-border payments remains a matter of discussion between the HKMA and the People’s Bank of China.

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.css-1m2rp1p{color:#34b8b5;}Macroscope | Could a digital Hong Kong dollar undermine the local banking sector? HKMA must take note

Macroscope | Could a digital Hong Kong dollar undermine the local banking sector? HKMA must take note