Hong Kong’s multiple central bank digital currency (m-CBDC) project is “going on very smoothly” and the aim is to commercialize the prototype developed and enhance cross-border payments, said Eddie Yue, chief executive of Hong Kong Monetary Authority (HKMA).

Yue was speaking together with Agustín Carstens, general manager of the Bank for International Settlements (BIS) at a virtual event hosted by the Hong Kong Academy of Finance this week to launch the BIS Annual Economic Report in Asia. BIS recently released a report that includes a special chapter on “CBDCs: an opportunity for the monetary system.”

The HKMA, together with the BIS Innovation Hub in Hong Kong as well as the central banks of China, the United Arab Emirates and Thailand have been collaborating on a wholesale m-CBDC bridge project — intended for financial institutions — using distributed ledger technology to support real-time cross-border payments on a 24/7 basis. 

‘A cross-border payment solution for everybody’

The results of the current phase two are expected to be released in a few months and will include the architectural design, use case, legal issues and practical challenges, Yue said. “If that is successful, you should see cross-border payments that can be done real-time across four jurisdictions 24/7, with the FX (foreign exchange) leg settled real-time on a PvP (“payment versus payment”) basis,” Yue said. “It will go a long way in advancing a cross-border payment solution for everybody.”

The next phase — expected to commence toward the end of 2021 — will involve the stock exchanges in Hong Kong and Bangkok as well as 30 banks in the four jurisdictions transacting on the platform. 

“If phase three proves to be successful, we can commercialize it,” Yue said. “We hope that there will be wider scale implementation around the region so that at least for the regional cross-border flows, it will be much cheaper and faster.” 

See related article: 4 central banks and BIS exploring CBDC bridge for Asia and Middle East

Project Aurum for retail CBDC

The HKMA is also, with the BIS, working on Project Aurum, a retail CBDC — or digital Hong Kong dollar — intended for individuals and companies distributed through commercial banks and payment service providers. 

Apart from exploring the technical aspects of a two-tier retail CBDC structure that supports hybrid CBDC and private CBDC-backed e-money, the HKMA has established an internal working group to study policy and legal issues such as privacy and resilience of the architecture.

“We expect that there should be some initial results in about 12 months’ time,” Yue said. “For now, we have an open mind… we want to complete the study first.”

Hong Kong has also been conducting technical tests with the People’s Bank of China on the use of the digital RMB (e-CNY) in Hong Kong for cross-border payment services.

Yue added that interoperability was important with individual jurisdictions having their own CBDCs. The BIS, he added, had a unique position enabling central banks to coordinate their CBDC initiatives.

“It’s a pretty new area where you want different pilots to be done, but once the pilots are mature, then there could be certain collaboration, coordination, that can be done among central banks, and the BIS will be a great place for central banks to talk about this,” Yue said. “It’s really about getting a platform for central banks to talk to each other so that cross-border payments in future can be made on a CBDC platform of some kind.”

‘Unique historical opportunity to redesign international payments’

Agustín Carstens, general manager of BIS, said that there was a “unique historical opportunity to redesign international payments.”

“The technology is there, and I think it is really our obligation to try to apply that technology to make payments far more efficient,” Carstens said, adding that it was also about making financial structures across different regulatory regimes compatible so that payments can comply with the requirements of the different jurisdictions. “We are continuing the move towards a very globalized world and therefore these international payments are of the essence.”

“What we need to do is to take advantage of all the financial infrastructure that is out there, but also invite new innovators into the game,” Carstens said. “An environment of competition, of open competition, invites new players into the market, and in that way, we will end up with a much more solid result.”

See related article: What lies ahead for CBDCs, Bitcoin and other digital currencies?