Hong Kong Preparing to Join Digital Yuan Pilot, Extend ‘Cross-border’ Reach

Mainland China and Hong Kong are set to co-launch the digital yuan’s first cross-border pilot project – as the People’s Bank of China (PBoC)-led project edges ever-closer to roll out.

According to Shanghai Securities News, Howard Lee, the Deputy Chief Executive of the Hong Kong Monetary Authority (HKMA), Hong Kong will become the “first cross-border pilot area for digital yuan outside Mainland China.” However, Lee did not put a timeframe on this.

Lee explained that “technical testing” has entered a “second stage” ahead of the move. He claimed that the “scope and scale” of the HKMA’s tests had “been expanded.” He also said that the number of participating commercial banks had “increased from one to four.”

Toward Digital Yuan Interoperability in Hong Kong

The PBoC wants to connect the pilot to the economic powerhouse of the nine neighboring southeastern cities known as the Greater Bay Area (GBA).

This network of some nine cities includes aforementioned Hong Kong. Although the latter has technically been part of China since 1997, it retains special administrative regional status. It also retains its own separate political and economic systems and its own currency.

Lee, who heads the HKMA’s financial infrastructure and fintech operations, stated:

“Hong Kong will continue to fully support the development of the digital CNY, promote the interconnection of the GBA. It will increase the speed and efficiency of cross-border payment services.”

Lee also noted that a “swap link” project was nearing completion. This tool will allow Mainland and Hong Kong bond markets to interconnect – and may possibly have a function in later digital CNY adoption.

Furthermore, the HKMA and the PBoC are working on a joint central bank digital currency (CBDC) project with the Bank for International Settlements. Known as the mBridge pilot, this initiative seeks to experiment with cross-border payments involving the HKMA, the PBoC, as well as the Thai and UAE central banks.

Twenty commercial banks took part in the project, which was completed in late September – with a total of $22 million worth of transactions processed.

Lee claimed that mBridge was “currently the largest CBDC trial in the world.” He noted that the project was the first to “use a variety of CBDCs to conduct real settlements for cross-border transactions.”