Retail CBDC Could Add Unique Value, but Further Investigation Is Needed, Hong Kong Central Bank Says

• Hong Kong’s Monetary Authority has published a report on phase 1 of its CBDC pilot.
• The report said an e-HKD could add unique value to the payments ecosystem, but further investigation is needed.

A retail central bank digital currency (CBDC) could add value to the payments ecosystem and enable new types of economic transactions, but further investigation and evaluation are required to determine large-scale and real-life applications, the Hong Kong Monetary Authority said.

The authority has not decided whether to introduce a digital Hong Kong dollar, or e-HKD, according to a report published after phase 1 of a pilot program. But Hong Kong's ambitions to become a virtual-asset hub have been apparent ever since it implemented a new regulatory regime in June. It granted the first set of licenses for crypto trading platforms in August. The HKMA embarked on the feasibility study known as Project e-HKD in 2021.

The report said the pilot found that an e-HKD could add value in three main areas – programmability, tokenization and atomic settlement – with the potential to facilitate faster, more cost-efficient and more inclusive transactions. However, the program's 14 pilots with 16 participating firms were conducted on a small scale under a controlled environment, the report said.

"The potential and prerequisites for realising such unique value at scale to substantiate the issuance of an e-HKD are subject to market development and further investigation," the report said. "Minor frictions identified during the pilots could become more apparent or even unacceptable to users in the production environment."

Phase 1 of the pilot involved diving into full-fledged payments, programmable payments, offline payments, tokenized deposits, settlement of Web3 transactions and settlement of tokenized assets. Hong Kong will now "explore new use cases for an e-HKD and delve deeper into select pilots."

This will involve understanding the e-HKD's role in facilitating new ways of transacting goods and services while ensuring financial stability.

The bank's position on a retail CBDC appears to be in the middle of a multinational debate. The U.S. hasn't made any major decision on CBDCs, with the subject becoming a controversial presidential election issue; India has gone ahead with plans for a retail CBDC and Australia has said its CBDC is likely some years away because of unresolved issues.

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