Cash Study: e-HKD (Hong Kong) and CrossBorder Transaction
Background
Inspired by the considerable potential that Distributed Ledger Technologies (DLT) hold, the Hong Kong Monetary Authority (HKMA) has been researching CBDC since 2017 to understand its benefits and possible applications.
Wholesale CBDC
In 2017, the HKMA commenced Project LionRock, named after Hong Kong’s most iconic mountain, in collaboration with the three note-issuing banks and the Hong Kong Interbank Clearing Limited. This Proof-of-Concept (PoC) project studied the potential applications of CBDC in handling large-value payments and delivery-versus-payment settlements.
In 2019, the HKMA and the Bank of Thailand initiated Project Inthanon-LionRock to study the application of CBDC to cross-border payments. The project was completed in December 2019 and a DLT-based PoC prototype was developed successfully together with ten participating banks from both places. The HKMA and the BOT jointly published a leaflet in November 2019 and a report in January 2020 to present the key findings.
Inthanon-LionRock: Leveraging Distributed Ledger Technology to Increase Efficiency in Cross-Border Payments (Leaflet, Report)
Project Inthanon-LionRock entered the second phase in 2020. With the joining of the Digital Currency Institute of the People’s Bank of China and the Central Bank of the United Arab Emirates in February 2021, and with the strong support of the Bank for International Settlements Innovation Hub (BISIH) Centre in Hong Kong, the project has evolved into the third phase and was renamed to Multiple CBDC Bridge (mBridge).
The mBridge project further explores the capabilities of DLT, through developing a trial platform, to facilitate real-time cross-border foreign exchange payment-versus-payment transactions in a multi-jurisdictional context and on a 24/7 basis. The mBridge project also explores business use cases in a cross-border context using both domestic and foreign currencies. Participating institutions jointly published a report in September 2021 to deliver the key takeaways of Project Inthanon-LionRock Phase 2 and introduce the scope of mBridge.
Inthanon-LionRock to mBridge: Building a multi CBDC platform for international payments
A brochure was published in November 2021 to present the recent developments of the mBridge project, including the potential business use cases identified, trial transactions on international trade settlement, and an outline of the platform's future roadmap.
mBridge: Building a multi CBDC platform for international payments
Retail CBDC
To strengthen research work on CBDC with a view to future-proofing Hong Kong in terms of CBDC readiness, the HKMA has started a study on the prospect of issuing retail CBDC in Hong Kong, i.e. e-HKD, covering both technical and policy considerations.
Building on the model for retail CBDC jointly investigated by the HKMA and the BISIH Centre in Hong Kong, a technical whitepaper was released in October 2021 to explore potential technical design options for issuing and distributing retail CBDC. The whitepaper is the first among similar papers published by central banks to unveil a technical architecture that includes a groundbreaking privacy preservation arrangement that allows transaction traceability in a privacy-amicable manner.
e-HKD: A technical perspective
Following the release of the technical whitepaper, the HKMA published a discussion paper in April 2022 which discussed the potential benefits and challenges brought by retail CBDC, various design considerations (including issuance mechanism and legal considerations) as well as use cases of e-HKD. The discussion paper invited feedback from members of the public on a wide range of policy issues.
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