Hong Kong Monetary Authority Launches Second Phase of CBDC Project

The Hong Kong Monetary Authority (HKMA) has officially entered the second phase of its Central Bank Digital Currency (CBDC) initiative, now rebranded as Project e-HKD+, according to a statement on September 23. This phase will explore advanced use cases for digital currency, focusing on e-HKD (the digital Hong Kong Dollar) and tokenized deposits for businesses and individuals.

In this second phase, the HKMA has engaged 11 prominent firms from a variety of sectors to test digital currency in real-world settings, aiming to push the boundaries of what e-HKD can do for both businesses and individuals.

Key Focus of the Second Phase

Phase 1 of the e-HKD project concentrated on domestic retail payments, offline transactions, and the settlement of tokenized assets. In contrast, Phase 2 will explore more advanced applications, particularly in:

1. Tokenized Asset Settlement
2. Programmability of Digital Currency
3. Offline Payments

The idea is to expand the utility of e-HKD by integrating it into diverse financial environments, improving accessibility, and addressing more complex use cases.

Who’s Involved?

A total of 11 firms have been selected to participate in this advanced testing. These firms represent a wide range of industries and include:

• ANZ
• Airstar Bank
• Aptos Labs
• BlackRock
• Bank of Communications (Hong Kong)
• ChinaAMC
• China Mobile
• DBS
• Fidelity International
• Kasikornbank
• Sanfield

Each participant will investigate how e-HKD can be applied in different scenarios, helping the HKMA evaluate the commercial viability of this digital currency.

Expanding the Scope: From Retail to Advanced Applications

One of the major shifts in Phase 2 is the move from basic retail payment applications to more complex use cases like tokenized asset settlements and the programmability of digital money. This programmability could allow for automatic, rule-based transactions—a concept that could revolutionize financial interactions for businesses and individuals alike.

In addition, the project will focus on offline payments, allowing transactions to occur even when internet connectivity is limited or unavailable, which is especially valuable in rural areas or during emergencies.

Project e-HKD+: A Step Towards a Digital Future

The HKMA stated that the project has evolved beyond its original concept of e-HKD. With the rapidly changing fintech landscape, Project e-HKD+ has been designed to align with these changes, incorporating cutting-edge technology to build a more resilient, efficient, and inclusive digital money ecosystem.

Establishing the e-HKD Industry Forum

To ensure collaborative progress, the HKMA will also establish the e-HKD Industry Forum. This forum will serve as a platform for participating institutions to come together, discuss common challenges, and explore scalable solutions for the implementation of new digital money forms. Industry-led working groups will initially focus on programmability—one of the key features of Phase 2.

Next Steps: Testing and Sharing Findings

The firms involved will be tasked with evaluating the feasibility of e-HKD in real-world scenarios. They’ll be using an e-HKD sandbox, allowing them to prototype, develop, and test various use cases. This experimental environment was also part of Phase 1 and will continue to be a vital tool for innovation in the CBDC space.

The HKMA plans to work closely with these firms over the next 12 months, with the intention of sharing key findings and insights with the public by the end of next year. These findings will help shape the future of e-HKD, providing critical input into the technology and legal framework needed for its potential future issuance to both individuals and businesses.

Looking Ahead

Phase 2 of Project e-HKD+ represents a significant step forward in Hong Kong's exploration of digital currency. By partnering with key industry players and focusing on complex, real-world applications, the HKMA aims to create a digital ecosystem that can support the seamless integration of both publicly and privately issued digital currencies.

This project, if successful, could position Hong Kong at the forefront of CBDC innovation, paving the way for a more inclusive and efficient financial system. The insights gained from Phase 2 will be crucial in determining how e-HKD will function in the broader economy, offering lessons not only for Hong Kong but for other regions exploring the potential of CBDCs.