The Hong Kong Monetary Authority (HKMA) and the People’s Bank of China (PBOC) recently announced a significant expansion of their collaboration on the pilot program for China’s central bank digital currency (CBDC), the e-CNY, which will make it more convenient for Hong Kong residents to set up and use e-CNY wallets, and to top up their wallets using Hong Kong’s Faster Payment System (FPS).
The e-CNY, or digital yuan, has been undergoing testing in major cities across the Chinese mainland for several years. Now, as part of the expanded pilot program, Hong Kong residents can easily open personal e-CNY wallets using their Hong Kong mobile-phone numbers. These wallets can be used for cross-border payments, but currently only for consumption purposes. Personal transfers are not yet supported. Hong Kong users can top up their wallets through 17 local retail banks via FPS. It is important to note that there are currently limits on wallet balances and transaction amounts — with a 10,000-yuan ($1,380) wallet balance limit, 2,000-yuan-per-transaction limit, and a 50,000-yuan cumulative limit.
Hong Kong’s role as the first jurisdiction outside the mainland to enable residents to set up e-CNY wallets locally is a milestone in cross-border financial cooperation. This move not only streamlines payment interoperability between Hong Kong and the mainland, but also reflects Hong Kong’s commitment to integrating into the nation’s development strategy. As the Guangdong-Hong Kong-Macao Greater Bay Area continues to integrate and more Hong Kong residents travel to the mainland for shopping and other purposes, the use of e-CNY is expected to further facilitate the flow of people and goods between the two regions, and contribute to Hong Kong’s role in the mainland’s financial reform and opening-up initiatives.
Looking ahead, the cross-border application of e-CNY holds immense potential. For Hong Kong residents and mainland visitors, it will provide a more convenient payment experience, stimulating cross-border consumption. Imagine visiting Shenzhen for a weekend getaway and seamlessly paying for your high-speed rail ticket, hotel stay, and local meals using your e-CNY wallet. No more scrambling for cash or worrying about exchange rates. Businesses in both regions can also benefit from e-CNY. It offers an efficient cross-border payment channel, reducing transaction costs associated with traditional methods like international wire transfers. This can improve cash-flow efficiency and potentially lead to more competitive pricing for consumers. In the financial services sector, e-CNY presents new opportunities for Hong Kong’s financial institutions. As the use of e-CNY expands, banks and other financial service providers in Hong Kong can develop innovative products and services that cater to this new digital currency. This could solidify Hong Kong’s status as a leading international financial center.
The HKMA has expressed its commitment to continuing its close collaboration with the PBOC to gradually expand the applications of e-CNY. This could include enabling features like person-to-person transfers or increasing wallet balance and transaction limits for users who have undergone real-name identification. The HKMA is working with retailers in both regions to encourage wider acceptance of e-CNY. This will facilitate cross-border retail payments between Hong Kong and the mainland, providing a more convenient payment option for residents and tourists.
While the primary purpose of the cross-border e-CNY collaboration is to facilitate cross-border payments and e-commerce transactions, some have raised concerns about the potential for e-CNY to encourage the dollarization of Hong Kong. To address these concerns, the HKMA has implemented several measures, including restricting the use of e-CNY for person-to-person payments and setting limits on wallet balances and transaction amounts. Additionally, the HKMA is working with the PBOC to implement real-name identification for e-CNY wallets, which will help to mitigate these risks. Real-name identification will allow authorities to better monitor and regulate the use of e-CNY, preventing any potential misuse.
The HKMA’s involvement in e-CNY is just one aspect of its broader digital currency initiatives. It is exploring and developing innovative digital currency solutions to support Hong Kong’s financial system and economy. This includes the second phase of its retail e-HKD trials; a new wholesale CBDC pilot project called Project Ensemble, which will support tokenized deposits and securities settlement; and a stablecoin sandbox. The e-HKD trials are testing the feasibility and potential benefits of a Hong Kong-based digital currency. Project Ensemble focuses on exploring the potential of wholesale CBDCs for interbank settlements and enhancing overall financial market efficiency. The stablecoin sandbox, on the other hand, provides a controlled environment for companies to experiment with and develop stablecoins, which are cryptocurrencies pegged to a stable asset like the Hong Kong dollar. These initiatives demonstrate the HKMA’s commitment to staying at the forefront of digital-currency innovation and ensuring that Hong Kong remains a competitive and adaptable financial hub in the ever-evolving global landscape.
The expansion of the e-CNY pilot program to Hong Kong is a significant step in cross-border financial cooperation and digital currency innovation. It signifies a deeper integration between Hong Kong’s and the mainland’s financial ecosystems, while opening up new opportunities for businesses and consumers in both regions. With its commitment to continuous collaboration with the PBOC and exploration of various digital currency initiatives, the HKMA is well-positioned to play a leading role in shaping the future of digital payments in Hong Kong and beyond. As e-CNY continues to develop and integrate with existing financial systems, it has the potential to streamline cross-border transactions, boost economic activity, and solidify Hong Kong’s position as a global financial center in the digital age.
The author is chairman of the Asia MarTech Society and sits on the advisory boards of several professional organizations, including two universities.
The views do not necessarily reflect those of China Daily.
