Hong Kong Unveils Digital Yuan Pilot Restricted to Cross-border Transactions 

Hong Kong has unveiled a pilot program for the Central Bank Digital Currency (CBDC), which allows residents to sign up for the digital yuan wallet using their phone number. 

However, the pilot digital yuan is restricted to cross-border transactions, implying one cannot execute peer-to-peer transfers within the country.  The pilot program features the People’s Bank of China (PBoC) CBDC. 

Hong Kong Welcomes Digital Yuan

The unveiling of the digital yuan pilot by the Hong Kong Monetary Authority (HKMA) marks the initial deployment outside mainland China. 

The pilot program is set to help Hong Kong residents execute transactions from their wallets. A Friday, May 17 announcement by the HKMA revealed that residents can top off 17 retail banks via the Faster Payment System (FPS). 

Piloting the digital yuan in Hong Kong marks the initial integration of CBDC via a central bank.  

The HKMA announcement illustrated that the Digital Currency Institute (DCI) enables the digital yan and FPS interoperability infrastructure. The announcement indicated that the DCI is uniquely designed to facilitate cross-border payments guided by the G20 countries’ roadmap.

The Digital Yuan pilot is similar to other blockchain protocols in facilitating round-the-clock payments. The HKMA chief, Eddie Yue, indicated that the e-CNY utilization and wallet will progressively realize more functionality in partnership with PBoC to enable more retail merchant adoption.

Yue explained that expanding the digital yuan (e-CNY) pilot within Hong Kong taps the round-the-clock operating hours and FPS’ real-time transfer. 

The pilot initiative accommodates users topping up their digital yuan wallets anytime. The users are not mandated to open the Mainland bank account, thus capable of facilitating merchant payments within China for the Hong Kong residents. 

Yue indicated that Hong Kong residents should use their mobile phone numbers to create wallets. However, the program can only facilitate cross-border payments, not peer-to-peer transactions. 

HKMA to Upgrade eCNY Wallets to Advanced Tiers

Yue reiterated that the HKMA will team with the DCI to upgrade the digital yuan wallets. Enhancing the higher tiers via real-name verification is possible alongside facilitating cross-border trade settlements for corporate users. 

Hong Kong unveiled the digital yuan pilot when several individuals questioned the CBDC’s intrusive nature. Nonetheless, they acknowledge that CBDCs promise enhanced financial inclusion. 

Concerns for CBDC became evident when Brazil’s central bank unveiled the source code behind the CBDC pilot in July last year. Scrutiny led to discovering the surveillance and control mechanisms that the developers embraced within the code. 

Brazil’s pilot CBDC attracted criticism since the control mechanisms could facilitate the bank freeze and lower user balances within the wallets. The concerns have not slowed the uptake of CBDC trials, particularly with 140 countries actively pursuing CBDCs, although they are trailing advanced digital yuan. 

Digital Yuan Pilot Usage in Hong Kong

The acceptability of the digital yuan is a critical consideration for China’s central bank. Its introduction aligns with bolstering yuan usage in Hong Kong and targeting tourist areas. 

Yuan is not utilized to pay fees related to public transportation fees. The alarming rates the exchanges offer for the Hong Kong dollars are a deterrence to the yuan usage. 

Introducing the digital yuan pilot is a game change with the potential to bolster yuan usage in Hong Kong. Such is likely because the PBoC assured it would facilitate more merchant acceptance of the digital yuan.