Hong Kong will partner with China’s central bank to test the utility of the Digital Yuan in cross border payments
The Hong Kong Monetary Authority (HKMA) announced earlier this month that it is in talks with the People’s Bank of China’s Digital Currency Institute on pilot testing China’s Central Bank Digital Currency (CBDC).
While the Digital Yuan has been in the testing phase for the past few months, this development marks the first use of the Digital Yuan for cross-border payments. Experts discuss the significance of choosing Hong Kong for piloting the CBDC outside the Chinese mainland.
Though there is no official timetable for the pilot testing, reports have suggested that it will be conducted by the Bank of China, Hong Kong among 200 staff members and selected merchants. Eddie Yue, the chief executive of HKMA explained that since the yuan is already in use in Hong Kong, its digital version is expected to bring more convenience for mainland tourists who visit Hong Kong.
Stanley Chao, managing director of All In Consulting, explained that the Digital Yuan presented the perfect opportunity for Hong Kong to influence the development of the Greater Bay Area also known as China’s financial centre while revitalising its economy after the social unrest in 2019 and the COVID-19 pandemic in 2020.
“The HKMA feels introducing DCEP would put Hong Kong back in its right place, front and centre, as Asia’s financial hub, and would bolster financial jobs, bring back international companies and once again make Hong Kong the undeniable financial centre in Asia”, Chao said.
However, Hong Kong and China’s major challenge in establishing the legitimacy of the CBDC in the Greater Bay Area is the presence of three different legal systems that will make cross-border transactions far from seamless.
With a 70-million population and combined GDP of USD 1.7 trillion, the Greater Bay Area consists of 11 different cities. From Macau’s Portuguese civil law to Hong Kong’s British common law, and mainland China’s socialist legal system—it presents the perfect dilemma to test out the potential technical and legal challenges for the Digital Yuan.
Charles d’Haussy, Director of Strategic Initiatives at ConsenSys said that these uncertainties make Hong Kong a unique sandbox for testing Digital Yuan utility in cross-border transactions.
“I’m convinced that 2021 will be the year where you will see more and more people having CBDCs in their wallets or within their businesses”, d’Haussy said. “Probably something people will not expect is that a lot of people in the market will be using CBDCs hopefully without even noticing”, he added.