Several countries are exploring a central bank digital currency but in Hong Kong, the feeling is different. The Hong Kong Monetary Authority (HKMA) said it’s not sure if the territory needs a digital currency at all.
According to the HKMA, there are several issues that need to be dealt with before moving ahead in this direction. First is whether there is any demand for a digital fiat currency and second, what form it should take. The central bank has until now observed developments of CBDCs around the world but doesn’t see the need in its jurisdiction right now.
“Hong Kong’s monetary system is currently stable and robust and there is no practical necessity to issue CBDC at this point,” an official told Reuters. He also added that research will be conducted as long as needed to explore the possibility of a digital currency.
The HKMA has already been testing blockchain technology with banks in the city and is also investigating other technologies that can help it issue a CBDC.
CBDCs are a hot topic in Asia’s financial markets, as no country has yet issued its own. The Central Bank of Japan (BoJ), for example, is conducting a study that explores how all residents could use the digital yen. The Hong Kong Monetary Authority has also launched a separate initiative to consider the pros and cons of launching e-HKD or an OTC market for HKD.
The HKMA outlined three likely scenarios:
1) Keeping things status quo, with e-HKD being exclusively used by businesses who interact with the central bank;
2) Creating a CBDC that can be transmitted/transferred exclusively via blockchain and smart contract technologies through KYC/AML procedures; and
3) Allowing anyone with access to the Internet to use e-HKD, with or without an account with the central bank.
As of now, it’s unclear which route the HKMA will eventually take.
Hong Kong isn’t sure if it needs a CBDC because there are many factors to consider. The three main scenarios are keeping things status quo, creating a CBDC that can be used exclusively via blockchain and smart contract technologies, and allowing anyone with access to the internet to use e-HKD. As of now, it’s unclear which route the HKMA will eventually take. Studies are still being conducted to explore all options and possibilities.
Each country is pushing for a CBDC for different reasons. In Sweden, bankers are concerned about the declining use of cash; in the Bahamas the government looks to build out a system for financial inclusion; Canada’s central bank sees the need for increased competition for retail deposits; while the People’s Bank of China wants to wrestle away the control AliPay and WeChat pay have over the nation’s money supply.
But what about Hong Kong? It’s a territory with its unique banking system, and one that’s currently in the process of integrating with China. So what are the HKMA’s thoughts on a CBDC?
As of now, it’s still up in the air. In October of last year, the HKMA announced that they would be starting a two-year study on the feasibility of launching a CBDC. The study will explore various aspects of a potential e-HKD, including technical feasibility, economic benefits and risks, as well as legal and regulatory issues.
So far, the HKMA has been tight-lipped about its findings. In a recent interview , however, the institution’s deputy chief executive, Howard Lee, told Bloomberg that a CBDC could bring about a “substantial change” to how Hong Kong operates.
But despite that optimism, Lee also said that there are no concrete plans for launching a digital currency.