“In the second phase, we would like to focus not just on the usability, but also the efficiency,” said Howard Lee, HKMA’s deputy chief executive, on Monday. “[Even] if it can be used, it does not necessarily mean that it would be a better option than the current electronic payment arrangement like FPS [Faster Payment System], e-wallets or mobile banking.”
The HKMA would like to see if the use of the e-HKD or tokenised deposits would attract and entice users, he added.
During the first phase launched last October, the focus was to examine the possible uses for the central bank digital currency. In March, the HKMA called for the submission of “innovative” use cases for the second phase of the e-HKD pilot. Eleven groups of participants have been selected to explore their use cases for e-HKD and tokenised deposits in three areas: settlement of tokenised assets, programmability and offline payments.
The firms selected for the second phase include ANZ, Airstar Bank, Aptos Labs, BlackRock, Bank of Communications (Hong Kong), ChinaAMC, China Mobile, DBS, Fidelity International, Kasikornbank, and Sanfield (Management), a wholly owned subsidiary of Sun Hung Kai Properties. Participants from the first phase taking part in the new phase include HSBC, Hang Seng Bank, Boston Consulting Group, Standard Chartered, Mastercard, Visa, Bank of China (Hong Kong), China Construction Bank (Asia) and ICBC (Asia).
They will examine the commercial feasibility, within a real-world setting, of new forms of digital money that may potentially be accessible to individuals and companies.
Project e-HKD has also been renamed as Project e-HKD+ to conduct a more “inclusive and comprehensive” exploration of digital money by including tokenised deposits, according to Lee.
E-HKD and tokenised deposits are “technically very similar” with only the issuers and counterparty risks being different, he added.
Among the applications that are being tested in the second phase include four for the settlement of tokenised assets. The tests will also include how e-HKD and tokenised deposits enable bank customers to conduct transactions of tokenised investment funds, if they securely work on publicly used blockchains, as well as conducting foreign-exchange transactions between e-HKD and stablecoin denominated in a foreign currency.
For example, Standard Chartered has teamed up with BlackRock and Mastercard to enable investors to buy tokenised assets and settle the transaction directly with the relevant asset manager using e-HKD or tokenised deposits.
“We are excited to be now entering phase two with a focus on the evolving investment landscape and exploring how clients can benefit from the use of tokenised money and assets,” said Stephen Man, head of wealth and retail banking at Standard Chartered Hong Kong. “We look forward to discovering what this can bring to our clients and how it might contribute to the development of a digital money ecosystem in Hong Kong.”
In the theme of programmability, five use cases will explore ring-fencing of funds to reduce the risk of misappropriation, enabling programmable prepayment using smart contracts and leveraging the e-HKD to help develop an open and scalable digital rewards platform.
In offline payments, Bank of Communications and China Mobile will test the use of mobile SIM cards to carry an e-HKD wallet for offline payments and transfers, while ICBC will explore e-HKD to enable dual offline payments.
The first phase of the e-HKD pilot featured 16 banks and payment companies and six use cases. The test cases included online payments, payments in shops and restaurants, collection of government payouts, tokenised deposits, tokenised asset settlement and Web3 trading and clearing.
The second phase will be conducted over the next 12 months, with the findings to be announced by the end of 2025, according to the HKMA.
“Project e-HKD+ signifies the HKMA’s commitment to digital money innovation,” said Eddie Yue Wai-man, CEO of HKMA. “The e-HKD pilot programme has provided a valuable opportunity for the HKMA to explore with the industry how new forms of digital money can add unique value to the general public.”
