Hong Kong to expand e-CNY pilot

HKMA and the PBOC to further support the expansion of use cases of the digital yuan in Hong Kong, targeting local consumers and travellers.

January 30, 2024

The Hong Kong Monetary Authority (HKMA) announced last week, jointly with the People’s Bank of China (PBOC), China’s central bank, six measures to deepen financial cooperation between Hong Kong and the mainland China market.

The six policy measures encompass various aspects in the financial sectors, including cross-border wealth management, credit referencing and onshore interbank bond market, expanding Hong Kong residents’ and investors’ access to these facilities.

Among the measures, the two authorities announced an expansion of a cross-boundary e-CNY pilot in Hong Kong, targeting individuals and corporates in both markets.

Eddie Yue, HKMA’s chief executive, explained in a media conference that trials for new use cases in the city have been completed, which includes topping up e-CNY wallets via the local faster payment system (FPS) and e-CNY consumption at vendors.

“More Hong Kong citizens would be able to open up their e-CNY wallets, facilitating their life and consumption in the mainland. Meanwhile, mainland visitors will also be able to spend e-CNY when they visit Hong Kong,” he said.

Yue added that in due course, the two authorities will continue to support the expansion of tested out pilot outcomes, involving more institutions, corporates and vendors to facilitate growing use cases of digital yuan in the Special Administrative Region (SAR).

“The presence of the digital yuan in Hong Kong could serve as an additional link to mainland China,” said Alex Axelrod, founder and chief executive officer (CEO) of Hong Kong-based payment platform Uluky.

The cross-border e-CNY pilot between mainland China and Hong Kong was initiated late 2020.

Major local banks in the city have since participated and rolled out multiple services for the scheme. For example, Bank of China (Hong Kong) completed a first-ever cross-border transaction worth Rmb24 million ($3.4 million) of a bulk commodity late last year with e-CNY, marking a market-first in corporate transactions using the digital currency.

"There are a range of use cases of e-CNY across China and Hong Kong, including frictionless cross border transactions between China and Hong Kong providing instant settlement without additional intermediaries and a reduced time, cost, and point-of-failure," Julia Demidova, head of CBDC and digital currencies product and strategy at FIS, told FinanceAsia. 

The retail adoption of e-CNY will likely have an impact on the institutional side, she pointed out.

"Wholesale payments are expected to grow annually, hence there will be continued development on the institutional or wholesale side. As infrastructure matures, we will see more institutional adoption which could potentially bring new growth opportunities."

Retail is harder 

Yet on retail side, Hong Kong itself still remains a city that largely relies on traditional payment methods including cash, credit cards and topped-up Octopus cards for consumption.

The local metro system (known as the MTR), for example, has not until last year begun accepting payment methods including QR codes and credit cards. While such payments remain unaccepted by most local taxi drivers. 

While in mainland China, “the electronic yuan faces significant competition, seeing as tech giants like Tencent and Alibaba continue to dominate over 90% of the payment landscape in the Chinese market,” Axelrod said.

To ensure wider market acceptance of the digital yuan, the currency needs to offer distinct advantages and applications that can resonate with the needs of businesses and individual consumers alike, he concluded.

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