Hong Kong accelerates work on e-HKD

Written by Kapronasia || March 13 2024

The March 7 launch of Hong Kong’s wholesale CBDC project was memorable. Firstly, the enthusiasm of the city’s financial regulators for this project is strong. While painting in broad brushstrokes, they outlined some lofty objectives for the digital HKD. The project aims to develop an interoperable platform that will improve efficiency, transparency and financial inclusion in the monetary and financial systems. “We’re calling it Project Ensemble” internally, to conjure a group of items working together, Hong Kong Monetary Authority (HKMA) deputy chief executive Howard Lee said at a press conference. “We hope it will play beautifully, like music.

The e-HKD project can be considered the third prong of a pro-digital assets trifecta also including the mBridge initiative with the mainland, Thailand and the UAE as well as the embrace of cryptocurrency by regulators. Hong Kong has been testing a retail version of the e-HKD since May with 16 test cases, while a legislative proposal to sell stablecoins to retail investors is awaiting public feedback.

From what we can see, it appears that some big names will be participating in the e-HKD wholesale project. The HKMA will form an “architecture community” to develop common standards that will include Hashkey Group, one of the first licensed cryptocurrency exchanges in Hong Kong, HSBC and its Hang Seng Bank subsidiary, Standard Chartered, and Bank of China (Hong Kong). More companies such as Microsoft and Ant Group’s Digital Technologies unit will also reportedly join the community.

At present, the use cases mentioned by the HKMA do not appear to address any major bottlenecks in payments – they seem more like solutions in search of a problem. For instance, the creation of tokenized electronic bills of lading (we had to look that word up), which according to the HKMA use blockchains to provide real-time and reliable cargo data, improve efficiency and mitigate the risk of fraud. Another potential use case is tokenized electric vehicle charging stations, “which can be broken down into bite-size tokens to improve their appeal,” the HKMA said.

Looking ahead, the HKMA foresees the possibility of a new financial market infrastructure (FMI) to bridge the gap between tokenization offerings and money. What is interesting to us is that the HKMA appears to be working on two distinct CBDC projects that do not have any obvious overlap. The Bank of International Settlements (BIS), which is overseeing mBridge, is not involved in Project Ensemble. It will be interesting to see which central banks the HKMA ultimately partners with on its homegrown CBDC project.