Led by mainland China, more economies are embracing a central bank digital currency (CBDC). Hong Kong is not far behind. Indeed, moving at an impressive speed, the city is launching, in phases, its own digitalised local currency called the e-HKD. As cash becomes increasingly obsolete and inconvenient, the future of payments is digital. Major central banks are simply adjusting to this new reality.

In Hong Kong, e-HKD will make it more convenient and safer to shop, dine out and transfer money. It also targets global transactions. The monetary authorities of Hong Kong, mainland China, Thailand and the United Arab Emirates have set up Project mBridge, a CBDC platform to facilitate cross-border transactions. For the current trial run, 16 local banks and payment firms have been asked by the Hong Kong Monetary Authority (HKMA) to offer the service to select clients. These include the city’s three note-issuing lenders, HSBC, Standard Chartered Bank and Bank of China (Hong Kong). The uses will include online payments, payments in shops and restaurants, collecting government payouts, tokenised deposits, and tokenised asset settlement for trading and clearing.

For security, the 14 specific uses approved by the HKMA will be ring-fenced from the rest of the system for now. The e-HKD comes as Hong Kong embraces virtual assets such as cryptocurrencies. Its use in buying cryptocurrencies will help counter money laundering.

HKMA nudges e-HKD with consultation on merits of digital currency

A question that must be asked – in Hong Kong and elsewhere that already have highly efficient and widely available low-cost digital payment systems – is what additional value or advantage e-HKD can offer over existing rivals. After all, Octopus, Alipay and WeChat Pay are already widely used. Well, there is transparency that will help lower costs, provide easy access, and ease of use across platforms for different e-currencies. For example, in foreign exchange, you get your foreign e-currency at the set rate without having to incur arbitrage and forex losses that banks and money changers typically impose on customers. But not all CBDCs are equal. There will be plenty of room for creative and thoughtful designs to enhance easy access, security and transparency. Flexible designs can help facilitate financial innovations in payments and other service domains.