Hong Kong urged to be hub for world’s central bank digital currencies

CHINA DAILY/ANN – Hong Kong financial regulators should adapt a cross-border perspective when developing both retail and wholesale uses for the digital Hong Kong dollar (e-HKD), if Hong Kong is to cement its reputation as a digital finance hub and an offshore renminbi finance centre, according to a local think tank.

Our Hong Kong Foundation recommended in a recent report that, in cross-border wholesale use cases, Hong Kong should aim to develop itself into a hub for regional or global central bank digital currencies (CBDCs) by connecting the e-HKD with other CBDCs as part of the ‘Multiple Central Bank Digital Currency Bridge’ project.

Hong Kong should take full advantage of its close ties with the mainland and its first-mover advantage as one of the participants in the ‘Multiple Central Bank Digital Currency (m-CBDC) Bridge’, according to a report by Our Hong Kong Foundation. “At this moment, the Chinese mainland still focusses on retail-use cases of the digital renminbi (e-CNY). But I think, as an international finance centre, Hong Kong should start considering building its financial infrastructure networks proactively now to facilitate the cross-border wholesale use cases of CBDCs, which are anticipated to grow in the future,” said Deputy Executive Director and Head of Public Policy Institute at the foundation Stephen Wong.

According to the OHKF report, Hong Kong should take full advantage of its close ties with the mainland and its first-mover advantage as one of the participants in the m-CBDC Bridge. Hong Kong should invite other economies with relatively mature wholesale CBDC development that share close economic ties with Hong Kong, such as Japan, Singapore and Switzerland, to join the m-CBDC Bridge. After more CBDCs join, Hong Kong then can play the connectivity role, according to the report.

In February, the Hong Kong Monetary Authority announced it had teamed up with the Bank of Thailand, the Central Bank of the United Arab Emirates (UAE), the People’s Bank of China, and the Bank for International Settlements Innovation Hub Centre in Hong Kong to work on the m-CBDC Bridge, with the goal of creating a system for cross-border payments using distributed ledger technology.

With mainland economy continuing to strengthen, the demand for cross-border exchange of the e-CNY will rise, whereas Hong Kong can play its existing advantage as a major global intermediary and explore opportunities to become an important transit platform for overseas exploration of the e-CNY, according to the report.

The Victoria Harbour next to commercial and residential buildings in Hong Kong. PHOTO: AFP