Exploring Use Cases for a Central Bank Digital Currency: HKMA's e-HKD Pilot Program Enters Phase Two

The Hong Kong Monetary Authority (HKMA) is entering the second phase of its e-HKD (e-Hong Kong dollar) pilot program, testing use cases for a possible central bank digital currency (CBDC).

Phase One Findings

In the first phase of the pilot program, 16 different firms from the financial, payment, and technology sectors explored potential use cases for a CBDC. The focus was on six categories: full-fledged payments, programmable payments, offline payments, tokenized deposits, settlement of web3 transactions, and settlement of tokenized assets.

One of the participants, Mastercard, investigated the integration of e-HKD with other blockchains by simulating the purchase of physical items and the exchange of non-fungible tokens (NFTs) representing digital certificates of authenticity.

Concerns and Considerations

The report highlights concerns expressed by respondents regarding privacy, commercial viability, and legal considerations. Privacy protections and the overall safety of monetary and financial systems are key areas of focus.

The report also raises security concerns related to programmable retail CBDCs (rCBDCs), emphasizing the need to strike a balance between innovation and cybersecurity risks.

Phase Two Objectives

The second phase of the pilot program aims to build on the success of phase one and explore new use cases for e-HKD. It will also delve deeper into select pilots from phase one.

Conclusion

The HKMA's e-HKD pilot program is progressing to the next phase, with a focus on testing and evaluating potential use cases for a CBDC. Privacy, commercial viability, and cybersecurity risks are key considerations in the development of a central bank digital currency.