Hong Kong has initiated a trial program for the digital yuan, the central bank digital currency (CBDC) of the People’s Bank of China (PBoC). This marks the first implementation of the CBDC outside of mainland China. Through the pilot, Hong Kong residents will be able to conduct transactions using their digital yuan wallets, which can be funded through 17 retail banks using the Faster Payment System (FPS).
According to the Hong Kong Monetary Authority (HKMA), this represents the system’s initial integration with a CBDC through a major central bank. The Digital Currency Institute (DCI) is responsible for facilitating the interoperability infrastructure between the FPS and the digital yuan, with the aim of enhancing cross-border payments as one of the main objectives on the G20 countries’ roadmap.
Similar to blockchain protocols, the digital yuan pilot enables 24/7 payments. Eddie Yue, the chief executive of the HKMA, mentioned in the announcement that the e-CNY application and wallet will gradually gain more features as the HKMA and PBoC collaborate to encourage greater adoption by retail merchants. Currently, Hong Kong residents only require their mobile phone number to create an e-CNY wallet, which can currently facilitate cross-border payments but not person-to-person transactions.
However, the HKMA and DCI plan to upgrade the e-CNY wallets to “higher tiers” through real-name verification, and they also intend to facilitate corporate use cases for cross-border trade settlements in the future.
While CBDCs offer the potential for greater financial inclusion, some individuals have concerns about their potential intrusiveness. In July 2023, Brazil’s central bank released the source code for its CBDC pilot, and within four days, people discovered the surveillance and control mechanisms embedded in the code, allowing the central bank to freeze or reduce user funds within CBDC wallets.
Currently, there are at least 140 countries worldwide working on CBDC pilots, with China’s digital yuan being one of the most advanced. The introduction of the digital yuan pilot in Hong Kong could potentially increase the usage of the yuan in the city, as the PBoC aims to promote greater merchant acceptance of the CBDC.