After m-CBDC Bridge, China’s Cross Border Agenda Connects Hong Kong’s Faster Payment
After its link with the Multiple Central Bank Digital Currency (m-CBDC) Bridge Project, China is now at the second phase of its research together with the Hong Kong Monetary Authority (HKMA), Mu Changchun, the director of the Digital Currency Institute (DCI) of the People’s Bank of China (PBoC) has said.
The phase will include the linkage of the digital yuan (e-CNY) with Hong Kong’s Faster Payments System (FPS). Launched in September 2018, the FPS seeks to enable users to make instant cross-bank and e-wallet payments with either the mobile phone number or the email address of the recipient through any bank and e-wallet operator in Hong Kong.
Changchun disclosed it at the joint seminar on “Hong Kong’s Positioning and Prospect as an International Financial Centre” co-organised by the PBoC and the HKMA on Thursday, Dec 9. The focus of the meeting’s thematic discussions is on the positioning and future development of Hong Kong as an international financial centre and an offshore yuan business hub.
He said the DCI has been working with the HKMA on improving the CBDC use for cross-border payments among residents of China and Hong Kong. They have also signed an MoU on the e-CNY and completed the first phase of technical testing for basic functions like recharging, transferring and spending the e-CNY between local banks and designated merchants. Now, the two sides are working to interconnect the e-CNY system and the Fast Payment system, and to make it more efficient in the Hong Kong residents’ usage habits.
“For example, in the future, when mainland tourists use digital renminbi to shop in Hong Kong, currency exchange will be done between two wallets and local merchants will collect money in Hong Kong dollars, so there will be no currency substitution,” Changchun said. He opines that after the outbreak and more people are free to travel between Mainland China and Hong Kong, digital yuan wallets will increase the level of cross-border payment facilitation between the two places.
Eddie Yue, the Chief Executive of HKMA, adds in his speech that there was a consensus that the opening-up of the Mainland’s financial markets, global fintech adoption and the mainstreaming of green and sustainable finance present huge opportunities for the future development of Hong Kong’s financial sector.
“We are pioneering research and pilot schemes in domestic and cross-border central-bank digital currencies,” Yue said, pointing out that over 60% of foreign direct investment into the Mainland today is routed through Hong Kong. “We are very pleased that the PBoC is our close partner in the m-CBDC Bridge project and the technical trials for cross-boundary use of e-CNY.”
The DCI, as the research arm of the PBoC, joined the m-CBDC Bridge, formerly known as Project Inthanon-LionRock, in February for cross-border payments that could go beyond Chinese territory, parties involved stated. The parties – HKMA, PBoC, the Bank of Thailand, and the Central Bank of the United Arab Emirates – say they seek to further “explore the capabilities of distributed ledger technology (DLT), through developing a proof-of-concept (PoC) prototype, to facilitate real-time cross-border foreign exchange payment-versus-payment transactions in a multi-jurisdictional context and on a 24/7 basis”.
Aside from the cross border angle, Changchun expects the m-CBDC Bridge project to help expand the broader application landscape of the e-CNY in the future with new business use cases to achieve a win-win situation for all parties as they tap into Hong Kong’s advantage as an international financial centre.