The Hong Kong Monetary Authority (HKMA) is making strides in its central bank digital currency (CBDC) initiative, with the successful completion of the first phase of the e-HKD (e-Hong Kong dollar) pilot program. This marks a significant milestone in the HKMA’s “Fintech 2025” strategy.

Phase One Triumphs: Key Findings

The initial phase, launched in November 2022, focused on evaluating the commercial viability of an in-house CBDC. The study covered six crucial areas, including full-fledged payments, programmable payments, offline payments, tokenized deposits, and the settlement of Web3 transactions and tokenized assets.

The HKMA’s report on the phase one trial emphasized three key areas as pivotal advantages for consumers and businesses. They are, programmability, tokenization, and atomic settlement.

Summary of pilots

Building on Success: Phase 2 Objectives

With the success of the first phase, the HKMA is gearing up for the second phase of the e-HKD pilot program. This phase aims to explore new use cases for e-HKD. Further, delving deeper into promising CBDC applications identified in the initial trial.

Technical considerations point towards a design based on distributed ledger technology, leveraging its interoperability and scalability capabilities.

Three-Rail Approach: Foundation, Pilots, and Launch

Hong Kong’s CBDC program follows a three-rail approach: foundation layer development, industry pilots and iterative enhancements, and full launch. Currently positioned on the second rail, the e-HKD program trial enjoys support from both public and private organizations. This further ensures commercial viability.

The three-rail approach

While focusing on the second rail, the HKMA remains committed to laying the legal and technical foundations for the e-HKD under the first rail initiatives.

Collaborative Efforts: Project mBridge Expansion

In tandem with localized CBDC efforts, central and commercial banks have joined forces under Project mBridge. This collaborative initiative aims to explore solutions for faster, cheaper, and more transparent cross-border payments.

On September 25, HKMA CEO Eddie Yue announced the expansion and commercialization of mBridge. He also welcomed new banking members from China, Hong Kong, Thailand, and the United Arab Emirates. Anticipating more central banks to join this open platform, Yue revealed plans to launch a minimum viable product, paving the way for gradual commercialization.

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