Hong Kong Conducts Research on Central Bank Digital Currency

The Hong Kong Monetary Authority revealed that it had conducted a research project to study the application of a central bank digital currency (CBDC). And it will publish a report probably in the first quarter of next year.

07 November 2019, AtoZMarkets – The HKMA has signed a blockchain collaboration with a subsidiary of the Digital Currency Institute of the People's Bank of China. That is about to launch a digital version of its national currency (RENMINBI). Central banks around the globe are stepping up to launch their digital currency. Facebook's ambitious plan of Libra encouraged them. Also, China's efforts to launch its global digital currency.

Hong Kong Central Bank Digital Currency

PBoC researchers have been working on the currency for five years. They are also exploring the possibility of issuing digital fiat money as an alternative to cash. At the Fintech event, Edmond Lau, Senior Managing Director of HKMA, unveiled details of the LionRock project. It is a low-profile project. The city's de facto central bank launched it in 2017. It is to study the benefits and risks of starting its own CBDC.

The LionRock project conducted in collaboration with the three issuing banks. Those are Hong Kong Interbank Clearing Ltd., R3 consortium, and a blockchain technology company. However, those are focused on cooperation between banks to design blockchain usage cases and applications.

The project explores a two-tiered issue model. Besides, it allows businesses to hold and use CBDC tokens as sponsored participants of their banks. Lau said HKMA's efforts to launch a CBDC focus on the institutional aspect. It is also particularly its use in domestic interbank payments, wholesale corporate payments and cash on delivery of debt securities.

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MoU with the Bank of Thailand

However, Lau said the HKMA does not see the need to issue digital currency to individual users, citing the massive availability of mobile payment services for retail users in Hong Kong. The HKMA signed a memorandum of understanding (MoU) with the Bank of Thailand in May. Additionally, the two authorities are conducting a joint research project called the LionRock-Inthanon Project. The projects are to study the application of the CBDC to cross-border payments, to facilitate payment-versus-payment (PvP) between banks in Hong Kong and Thailand.

The Bank of Thailand continued its own Inthanon project. Furthermore, it is to develop and test a proof of concept for the wholesale transfer of funds nationwide. However, It will be done through wholesale CBDCs based on the DLT. Eddie Yue, the managing director of HKMA, said the digital currency that will be issued by the monetary authority is intended to be used for the settlement of cross-border payments between Hong Kong and other countries. Recently, Hong Kong to publish crypto exchange regulations.

It will reduce the layers of settlement involved. And hence, It will reduce the cost and time required for cross-border credit transfers. If it forms, the digital currency will be available to businesses. It is not just for banks, and may also even be used for personal purposes.

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