Hong Kong advances CBDC exploration with e-HKD second pilot phase

abdelaziz Fathi

The Hong Kong Monetary Authority (HKMA) has launched the second phase of its pilot program to explore “innovative applications” for a central bank digital currency (CBDC) for public use. This move comes five months after the conclusion of the first trial run.

In October, the city’s de facto central bank wrapped up its first trial of the e-HKD, involving 16 banks and payment firms alongside their six “use cases” tested among a select group of clients. These applications ranged from online and in-store payments to government disbursements, tokenized deposits, asset settlements, and Web3 trading and clearing, marking a preliminary step towards introducing a digital currency for public transactions such as shopping and money transfers.

HSBC, Hong Kong’s largest bank, participated in the first phase and said it plans to continue involvement in the second phase.

The HKMA’s recent announcement highlighted the construction of an “enhanced e-HKD sandbox” under Project Ensemble, another initiative unveiled last week to lay the groundwork for a wholesale CBDC rollout. This upgraded sandbox will help the participants in the second pilot in developing and testing their proposed use cases, as well as examining the interoperability and interbank settlement between e-HKD and other tokenized monetary forms.

“Building on the success and experience of phase 1, the next phase will delve deeper [to explore] where an e-HKD could add unique value, namely programmability, tokenisation and atomic settlement,” the HKMA said in a press release on Thursday.

“HSBC has been a key participant in the e-HKD pilot and is keen to drive initiatives on all fronts of digital money. We look forward to participating in Phase 2 of the e-HKD pilot programme,” a spokesman added.

Interested parties have until May 17 to apply for participation in the second trial phase, with the HKMA planning to conduct interviews with selected applicants in the early summer. Phase 2 is slated to continue until mid-2025, allowing participants ample time to test and evaluate their proposed use cases thoroughly.

Hong Kong has emerged as a leader in experimenting with various forms of digital currency and fostering the blockchain ecosystem. Recent initiatives include the launch of a “wCBDC” pilot for interbank settlements and a stablecoin sandbox for companies to trial cryptocurrency tokens pegged to fiat currency.

Moreover, legislative proposals are underway to enable the sale of stablecoins to retail investors, and collaborative projects with central banks from mainland China, Thailand, and the United Arab Emirates are exploring multi-CBDC solutions for cross-border payments.

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