Hong Kong takes major step towards a CBDC by publishing its e-Hong Kong Dollar (e-HKD) whitepaper
Hong Kong is keen on joining other countries in deploying a central bank digital currency (CBDC). It has made a major step in realizing this dream by completing and publishing a whitepaper for its to be CBDC, the e-Hong Kong Dollar (e-HKD).
The whitepaper is titled: “e-HKD: A technical perspective,” and it provides an outline of the technical aspects of the e-HKD and the policy considerations including privacy and transaction traceability.
Some of the technical aspects include the “potential architectures and design options that would be applied to the construction of the infrastructure for distributing e-HKD.”
The development comes four years after the de facto central bank the Hong Kong Monetary Authority (HKMA) started studying CBDCs. The bank started its research back in 2017.
HKMA’s take on the feasibility of a CBDC in the country
Hong Kong has a very robust financial service sector and the HKMA took it upon itself to explore how viable a CBDC would be in such a sector.
It undertook a project duped “Project LionRock” under which it carried rigorous research on what the CBDC would mean to its financial service sector. It also partnered with other countries including Thailand and mainland China, all of which have also expressed interest in developing a CBDC for their respective countries.
China is leading the way and it is already in the trial phase with its digital Yuan (e-Yuan). Thailand on the other, hired German technology company Giesecke + Devrient (G+D) this year to develop its CBDC.
In the research, the central bank also researched how the CBDC would perform in cross-border payments especially with its neighbors like China and Thailand.
After almost four years of research, HKMA embarked on writing the whitepaper in June this year with the help of the BIS Innovation Hub.
Potential challenges developing the e-HKD
The whitepaper also outlines some of the challenges that the central bank expected to meet when developing the CBDC.
These challenges include balancing traceability and privacy and handling issues related to pseudonymity, anonymity, transaction confidentiality, and metadata obfuscation.
The HKMA noted that it will have to put everything on the balance when developing the CBDC to ensure these challenges are addressed without distorting the features and functionalities of the currency.