Hong Kong’s FPS system to integrate digital yuan
Hong Kong is gearing up to test the integration of China’s digital yuan with its domestic Fast Payment System (FPS). This initiative, announced by officials earlier this week, marks the second phase of the e-CNY trials in the financial center.
China’s e-CNY stands out as one of the most advanced central bank digital currency (CBDC) projects among the world’s major economies. While the initial focus of the project is domestic, cross-border trials in Hong Kong have been gaining momentum.
China’s latest stride in its digital yuan pilot involves connecting its CBDC platform with Hong Kong’s FPS. This merger is set to expedite cross-border digital yuan transactions and enhance the interoperability between China’s CBDC and global payment networks.
Conceptualized by the Hong Kong Monetary Authority (HKMA) – the territory’s central bank and primary financial regulator – the FPS acts as an inter-bank connectivity tool. The platform facilitates seamless P2P transfers, e-wallet top-ups, and online shopping, reflecting the HKMA’s vision of simplifying payment processes.
Boosting cross-border payments
Hong Kong’s integration efforts with the digital RMB span over three years. The latest updates enable Hong Kong citizens traveling to mainland China to replenish their Digital RMB wallets via the FPS. As the state newspaper, The People, highlighted, this move promises users faster transaction times, reduced costs, and increased account control.
Previously, foreign visitors could use these cards with the e-CNY, albeit with a lag during the payment process. However, the latest updates now allow Visa and Mastercard users to preload their digital RMB wallets during their mainland visits. An automatic recharge feature also ensures the wallet is replenished from the user’s bank account whenever there are insufficient funds for a purchase.
Beginning its journey as a pilot in 2019, the adoption of e-CNY was initially modest. Fast forward to today, the virtual coin is now being tested across 26 cities, with roughly 5.6 million merchants registered nationwide by last year.
According to former People’s Bank of China (PBOC) governor Yi Gang, as of the end of June 2023, total transactions using the digital currency had soared to 950 million, amounting to a 1.8 trillion yuan ($249.9 billion). This represents a huge uptick from the 100 billion yuan ($13.9 billion) reported the previous August.
The massive rollout of the digital yuan, evidenced by the 120 million wallets opened, goes beyond just the digitization of currency. There’s a larger narrative in play. The e-CNY represents an avenue to bolster the overseas adoption of the Chinese currency, thereby countering potential risks of Western sanctions. Furthermore, it provides China with a tool to challenge the longstanding dominance of the US dollar in global transactions.