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The Hong Kong Monetary Authority (HKMA) has invited stakeholders to feedback how they think a central bank digital currency (CBDC), named the e-HKD, could be best utilised in the Chinese special administrative region.
The HKMA has issued a discussion paper titled “e-HKD: A policy and design perspective”, inviting views from the public and the industry on key policy and design issues for introducing a prospective CBDC into the Asian financial hub.
Stakeholders have until May 27 to submit their responses to the consultation.
After announcing the Fintech 2025 strategy in June last year, the HKMA started a project to study the prospect of introducing the e-HKD in Hong Kong. The initial findings of the first part of the study, which focused on the technical aspect, were published in October 2021 in the form of a technical whitepaper.
The second part focuses on the policy and design aspects of introducing the e-HKD, with initial findings set out in the paper.
The issues examined in the study include the potential benefits and challenges; design considerations, such as issuance mechanism; interoperability with other payment systems; data privacy and protection issues; as well as use cases.
Although the HKMA has yet to take a stance, the regulator has suggested that the e-HKD could bring both benefits and challenges to Hong Kong’s currency and financial stability, as well as its role as an international financial centre.
With appropriate functionalities and attributes, the e-HKD could help position the administrative region for the challenges of alternative units of account such as stablecoins dominating in Hong Kong, although such a possibility remains remote.
Meanwhile, the potential programmability aspect of the e-HKD could enable innovative applications such as smart contracts. However, this will depend on the associated challenges like programme glitches being properly addressed.
As with the European Central Bank and others considering the benefits and risks of a CBDC, the HKMA has warned that the design of e-HKD requires very careful consideration.
In particular, its circulation must be fully backed by assets held in the Exchange Fund in accordance with the Currency Board principles under the country’s Linked Exchange Rate System.
The need to ensure that the e-HKD upholds user privacy while also ensuring the integrity of the e-HKD system is also stressed in the discussion paper, given that full anonymity, while technically feasible, is not a plausible option due to anti-money laundering/counter-terrorism financing requirements.
To facilitate stakeholders in sharing their views, the HKMA has highlighted the issues for comment in the form of 12 discussion questions in the consultation document.
These include asking stakeholders what technologies apart from programmability can provide successful use cases, what ways the HKMA could promote the use of an e-HKD and how the private sector can “contribute to the e-HKD journey”.
