Hong Kong's digital currency: the beginning of the end for cash?
- With the growing interest in digital currency for local retail purposes, the Hong Kong Monetary Authority (HKMA) is studying the feasibility of an e-Hong Kong dollar, which would be an electronic version of a physical banknote
- What is the purpose of this partial transition to digital currency?
Digital currency is becoming increasingly popular, and thanks to Covid-19, people are using touchless payments, online shopping, and e-commerce platforms more than ever. With the growing interest in digital currency for local retail purposes, the Hong Kong Monetary Authority (HKMA) is studying the feasibility of an e-Hong Kong dollar, which would be an electronic version of a physical banknote.
China’s sovereign digital currency, e-CNY, is scheduled to launch in 2022, and is designed to partially replace physical cash notes and bills in the retail sector domestically. What is the purpose of this partial transition to digital currency?
Henry Zheng, Partner of FinTech and Innovation & APAC FinTech and Innovation COO at EY, answers with a rhetorical question: “with the whole world going digital, why not have a digital currency?” Bénédicte Nolens, Head of the Hong Kong Centre at BIS Innovation Hub, adds her perspective that retail CBDC that is nationally influenced is meant to support financial inclusion.
In terms of the effects that the introduction of digital currency might have on current monetary systems and policies in Hong Kong, Carie Li, Economist at OCBC Wing Hang Bank, states the “launch of an e-Hong Kong dollar will not have any implication on link exchange rate systems, because it would just be an electronic version of cash and would be issued with the same mechanism.”
Though link exchange rates may not pose an issue for the e-Hong Kong dollar, all digital currencies likely have a lot of work to do to create a user-friendly experience. Professor Huang Yiping, Director of Institute of Digital Finance at Peking University, expands on this and says “the question now is if these new [digital currency] institutions can effectively build similar ecosystems [to Alipay and WeChat Pay] to attract the users.”
Cybersecurity and financial crime compliance is an important issue when talking about digital currencies, and “with anything digital, there is transactional data that is recorded and there will be more information on where the capital flows,” Zheng says. This will allow the government and other regulators to catch malpractice more easily. There must also be a balance between civilian data privacy and things like national security and data collection. Nolens believes “the way that countries deal with [this balance] will depend on both the legislative environment … and the cultural environment.”
Digital currencies will not completely replace physical cash for everyone, they will likely grow in prevalence in the coming years, especially after the official release of the e-CNY scheduled for after the Winter Olympics in 2022.
