Retail CBDC in Hong Kong: Lessons Learned from HKD Pilot Program

Introduction

• The Hong Kong FinTech Week 2023 featured a panel discussion on retail CBDC, focusing on the lessons learned from the HKD pilot program.
• Key speakers included representatives from the Hong Kong Monetary Authority, Hang Seng Bank, MasterCard, HKT, Visa, and ICBC Asia.

HKD Pilot Program Overview

• The HKMA has emphasized the importance of public and private collaboration in the HK retail CBDC journey.
• The pilot program began in May and involved 16 firms from financial, payment, and technology sectors.
• 14 pilot test cases were conducted, focusing on domestic and retail use cases across six categories.
• The HKMA released a report summarizing Phase One findings and future directions.

Key Areas of Value: Programmability, Tokenization, and Atomic Settlement

• Programmability
  • Offers unique value to HKD in the payment ecosystem.
  • Use cases involved merchant reward programs and government fund distributions.
  • Benefits: easy issuance of incentives, risk mitigation, and support for digital economy growth.

Insights from Panelists

Gilbert Lee (Hang Seng Bank)

• Emphasized programmability’s role in shaping future payments.
• Pilot involved creating a private blockchain and hypothetical wallet.
• Use cases tested included merchant reward programs and government grants.
• Observed high satisfaction and potential for digitized payment processes.

Asok Vantes (MasterCard)

• Highlighted programmability as a trust mechanism in the digital world.
• Project involved guaranteeing authenticity in high-value transactions (e.g., luxury watches) using NFTs.
• Emphasized programmability’s flexibility across various digital assets.

Monita Long (HKT)

• Advocated for tokenization, especially regarding Web3.
• Focused on secure lending with tokenized property.
• Highlighted potential economic benefits and liquidity.
• Challenges include integrating with legacy systems and privacy concerns.

Nishin Shavi (Visa)

• Discussed tokenized deposits and B2B use cases.
• Explored benefits in settlement efficiency and transparency.
• Emphasized privacy protection and 24/7 blockchain infrastructure.

Flora L. (ICBC Asia)

• Introduced an offline payment solution using a physical e-HKD card.
• Targeted highly cash-concentrated scenarios (wet markets, taxis).
• Highlighted ease of use, security, and benefits for merchants in cashless payments.

Conclusion

• The HKMA remains open-minded about the implementation of e-HKD, considering industry feedback and jurisdictional developments.
• Plans to commence Phase Two of the HKD pilot program next year, focusing on new and existing use cases.
• Emphasized the importance of public-private collaboration in advancing digital currency initiatives.

Final Thoughts

• The HKD pilot program showcases the potential and challenges of adopting a retail CBDC in Hong Kong.
• Ongoing collaboration and research are essential for refining approaches and ensuring the successful implementation of e-HKD in the future.