May 22, 2024
By Sharan Kaur Phillora
Hong Kong has launched a pilot program for China’s digital yuan, known as the e-CNY, marking a significant step in integrating central bank digital currency (CBDC) into its financial system. The Hong Kong Monetary Authority (HKMA) announced this initiative, aiming to enable seamless retail transactions and cross-border payments for residents.
Here’s what we know:
The e-CNY allows users to create digital wallets linked to their mobile numbers, funded through 17 local banks using the Faster Payment System (FPS). This marks the first time a CBDC is connected with a rapid payment system, offering a digital alternative to cash and expanding the global use of the digital yuan.
The pilot program imposes transaction and balance limits to ensure financial stability. Individual transactions are capped at 2,000 yuan, daily spending at 5,000 yuan, and the maximum wallet balance at 10,000 yuan. These controls help regulate the digital yuan’s circulation and maintain economic equilibrium.
Hong Kong’s involvement in the e-CNY trial follows a series of successful cross-border payment tests between Hong Kong and mainland China. In December 2020, Hong Kong completed initial testing for e-CNY wallets, and in February 2023, promotional events in Shenzhen highlighted the potential for increased cross-border usage post-COVID-19.
The digital yuan pilot is expected to benefit both consumers and merchants by eliminating transaction costs associated with traditional banking platforms. As of June 2023, the digital yuan had facilitated transactions worth 1.8 trillion yuan (US$250 million), with over 10 million merchants across 17 provinces and cities in mainland China accepting the digital currency.
The HKMA plans to enhance e-CNY wallets with real-name verification and explore corporate applications for cross-border trade settlements, potentially increasing the digital yuan’s adoption and usability. This initiative aligns with broader efforts to leverage digital currencies for international trade, showcasing the growing influence of CBDCs in global finance.
About the author
Sharan Kaur Phillora’s thirst for knowledge has led her to study many different subjects, including NFTs and Blockchain technology – two emerging technologies that will change how we interact with each other in the future. When she isn’t exploring a new idea or concept, she enjoys reading literary masterpieces.
