Hong Kong's financial secretary, Paul Chan, announced that the Chinese special administrative region will participate in trials of the digital yuan, to encourage its use and expansion in the region.
China’s central bank digital currency (CBDC), known as e-CNY or digital yuan, has been one of the most innovative and successful initiatives in the digital currency space, and now Hong Kong is joining in on its success story to accelerate its expansion.
According to statements by Finance Secretary Chan, during a speech on the region's budget, The digital yuan will be integrated into the financial payment infrastructure developed by Hong Kong, the Faster Payment System (FPS). Through this infrastructure, the special administrative region enables banks, wallet providers and citizens to make faster and more efficient retail payments.
“In addition, we will expand the scope of e-CNY pilot testing in Hong Kong. Members of the public can easily set up CNY e-wallets for use and to top up funds through the Faster Payment System, thereby further improving the efficiency and user experience of cross-border payment services,” the Secretary said.
Now, the digital yuan will be accessible through this payment system, thereby expanding access to and use of China's digital currency.
Cross-border use of digital yuan expands
Since before its official launch during the 2022 Beijing Winter Games, the digital yuan has managed to gain widespread adoption and use in the country. The Central Bank of China has been carrying out a series of pilot tests and implementations in different regions in order to imbue everyone with its new form of digital money and it has been during these testing periods that the currency has expanded.
In addition to gaining adoption among citizens, China's CBDC has been bolstered by growing domestic and international cooperation. Banks such as MYbank and WeBank, backed by Alibaba and Tencent respectively, signed on to the digital yuan in 2021. Also, payment apps Alipay and WeChat incorporated the CBDC in early September last year, and later, China's oil and gas company PetroChina revealed that it would liquidate the first international crude oil transaction, of 1 million barrels, using the digital yuan.
Hong Kong’s recent addition to the digital yuan ecosystem will further boost the craze for this CBDC. According to Secretary Chan, users of the Chinese digital currency will be able to top up their accounts using FPS.
The first phase of e-HKD development is complete
Hong Kong will integrate the digital yuan into its FPS payment system after completing the first phase of its own Hong Kong digital dollar project, known as e-HKD. As reported by this outlet, the special administrative region of China is developing its own version of CBDC, based on its official fiat currency. As Hong Kong is governed by the “one country, two systems” policy, the city/region has its own monetary system independent of China, and its government has the power to issue its own national currency.
However, through the integration of the digital yuan, China's official CBDC, the region seeks to establish collaboration, as an important step towards financial integration and regional stability.
According to Secretary Chan, the use of CBDC through Hong Kong’s FPS system will enable greater integration between digital currency and foreign currencies and, therefore, greater cross-border use of this currency.
The digital yuan for the world
China’s government has aimed to establish itself as a global leader on several fronts, so the convergence of foreign institutions, both governmental and private, in support of the growth and expansion of its CBDC is seen as an effort to bridge the gap between the country and the rest of the world.
On the development of the e-HKD, Hong Kong reported that it is examining the retail use of the CBDC in new use cases, such as programmable payments, offline payments and tokenized deposits. The regional government also plans to implement more complex uses for this digital currency in a second phase that will be launched soon.
The e-HKD is an initiative that seeks to improve efficiency and financial inclusion in the region. Like the e-CNY or digital yuan, Hong Kong’s e-HKD is based on blockchain technology. In addition, this digital currency uses a hybrid system that combines the characteristics of a wholesale CBDC and a retail CBDC, allowing it to be used to make cross-border payments as well as facilitate trade and investment.
During his speech, Secretary Chan expressed optimism about the future of the e-HKD and the digital yuan, saying that both projects would contribute to strengthening Hong Kong's position as an international and regional financial centre. He also spoke about the mBridge project, another important initiative that will promote the use of CBDC digital currencies in cross-border settlements.
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