Hong Kong will soon roll out a pilot program for the retail cross-border use of e-CNY — China’s central bank digital currency (CBDC) — and small and midsize businesses could be major beneficiaries, industry experts say.

Eddie Yue, chief executive of the Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, said Monday at a briefing to the Legislative Council that the upcoming testing marks an important step for Hong Kong to strengthen its role as an offshore yuan trading center.

Yue added the pilot for retail e-CNY will launch soon after the Spring Festival, which ends on Feb. 15 this year.

What’s unique about the e-CNY pilot in Hong Kong is its linkage with the city’s Faster Payment System (FPS), a payment infrastructure the HKMA introduced in 2018. The FPS allows instant cross-bank payments in the Hong Kong dollar and the Chinese yuan by simply entering the mobile phone number or email address of the recipient.

Such a new feature doesn’t come as a surprise. Mu Changchun, director-general of the People’s Bank of China’s digital currency institute, said in December that his team was exploring the approaches for interlinking the e-CNY with the FPS in Hong Kong to improve payment efficiency without changing local residents’ payment habits.

In 2021, the FPS recorded 670,000 daily HKD transactions on average, up by 90% from 2020, according to an HKMA report. At the end of last year, the FPS had 9.62 million registrations in email, mobile number, Hong Kong ID and FPS ID. To put that into perspective, Hong Kong had a population of 7.39 million in mid-2021.

The FPS’ large and growing user base could be beneficial for the e-CNY trial, experts said. By linking e-CNY wallets with the FPS, the authorities hope that mainland tourists would be able to make payments to local merchants in Hong Kong with e-CNY while the merchants could receive directly in HKD.

Future adoptions include having Hong Kong residents in the Greater Bay Area (GBA) — which connects Hong Kong, Macau and Guangdong province — make payments through the FPS-digital yuan linkage.

“The link between the e-CNY and HK’s FPS system provides our first example of how the e-CNY can be used to link retail payment systems,” Richard Turrin, a Shanghai-based fintech consultant who recently published “Cashless: China’s Digital Currency Revolution,” told Forkast.

Turrin said the e-CNY linkage with the FPS would be a “major benefit to small and midsize enterprises within the region,” as e-commerce sites, retailers and restaurants wouldn’t have to change much for accepting and converting e-CNY payments.

“I am sure some retailers and restaurants will opt in for the pilot program, even though there would be a better use case for these tests if the flow of visitors from the mainland to Hong Kong were like the one from before the pandemic,” Oriol Caudevilla, a co-leader of the CBDC and blockchain working group at the Global Impact FinTech Forum, told Forkast.

Caudevilla added that the target users of the e-CNY in Hong Kong likely will be mainly mainland visitors.

Amnon Samid, CEO of Israel-based cybersecurity company BitMint, who participated in developing retail CBDC trials for China, told Forkast that if the e-CNY is well deployed in Hong Kong, it could contribute to the recovery of the Hong Kong economy, especially by enabling smoother and frictionless commercial relations with the mainland — especially the GBA.

Hong Kong can serve as a good test bed for digital currency given its digital-savvy community and the mature FPS system, Samid added.

Ningwei Qin contributed to this report.