Beijing isn’t the only one in China studying a digital currency.
A similar initiative in Hong Kong involving a government-backed digital currency has taken a big step forward, as the former British colony unveiled details of a project that can facilitate the exchange of potential central bank digital currencies (CBDCs) from various jurisdictions in cross-border transactions powered by blockchain technology.
The Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, said at a briefing last week that it has wrapped up the initial phase of Inthanon-LionRock, a joint research project with the Bank of Thailand, in cross-border payments. The project was unveiled in November under a financial technology memorandum of understanding signed six months earlier.
Hong Kong and Thailand are just two of many jurisdictions now working on digital currencies, which have the potential to make the movement of money more efficient within their areas and for cross-border transactions. The Thailand tie-up marked the latest step in the development of Hong Kong’s digital currency by demonstrating how the HKMA could enable the usage of digital currencies.
The HKMA said that the proof-of-concept has been successfully completed in the Thai project, and confirmed the technical feasibility of implementing practical solutions to address key challenges of cross-border payments.
The project aims to develop a blockchain corridor network “to connect the central bank digital currency blockchains of Hong Kong and Thailand to facilitate cross-border payments at wholesale level,” the HKMA said. By building up a blockchain-powered “corridor network,” cross-border fund transfers can occur real-time with fewer intermediaries or settlement layers, which can ensure higher efficiency, lower settlement risk and better transparency and compliance, the HKMA report said.
In the model, the assets underlying Hong Kong’s digital currency are designed to consist entirely of assets backed by U.S. dollars, Colin Pou, the HKMA’s executive director of financial infrastructure, told Caixin. That would allow the exchange rate to remain stable and not break the existing linked exchange rate system between the Hong Kong and U.S. dollars.
The HKMA has yet to set a timetable for the launch of its digital currency, Pou said. In 2017, the HKMA started to study the possibility of issuing its own digital currency. Pou said the digital currency used by Hong Kong for internal testing has been put to test in the “corridor network” and the results were positive.
At the moment, 10 banks have participated in the HKMA’s digital currency initiative. The Hongkong and Shanghai Banking Corp. Ltd. participated in both the Hong Kong and Thai sides, while ZA Bank Ltd., one of Hong Kong’s first virtual banks, took part on the Hong Kong side, an HKMA research report shows. Participating banks on the Thai side included Bangkok Bank Public Co. Ltd., Krung Thai Bank Public Co. Ltd., Siam Commercial Bank Public Co. Ltd. and Standard Chartered Bank (Thai) Public Co. Ltd.
While the current project only tested a corridor network with 10 participating banks from Thailand and Hong Kong, the model is designed to be scalable and can be further extended to other jurisdictions or markets, the HKMA said.
The People’s Bank of China, the Chinese mainland’s central bank, is also working on its own digital currency, though no timetable has been announced for that either. Hong Kong is part of China, but maintains its own separate currency, the Hong Kong dollar, from the mainland’s currency, the yuan.
Zhou Xiaochuan, a former central bank governor, has said that digital currencies have the potential to inflict shocks on existing global financial infrastructure. Most digital currencies were initially designed to improve efficiency and reduce obstacles by introducing new technology, especially in facilitating cross-border payments, Zhou said. But they have also triggered debate about how they should be managed and what role central banks should play, he added.
Contact reporter Timmy Shen (firstname.lastname@example.org, Twitter: @timmyhmshen)
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