Hong Kong expands pilots to use digital yuan across borders
The People’s Bank of China’s Digital Currency Institute and the Hong Kong Monetary Authority are rapidly advancing their joint tests of using the digital yuan for cross-border payments.
According to Bloomberg, HKMA staff confirmed this week that the initial testing phase for using the currency across borders was successful. The initial tests involved multiple parties, including selected traders and a bank designated by the Chinese authorities in the mainland. HKMA said plans for the next phase of pilots are already underway:
“We tested the use of the associated app, the system connectivity and certain use cases such as cross-border purchases. We discuss and work together with the PBOC [People’s Bank of China] on the next phase of technical testing, including the feasibility of expanding and deepening the use of E-CNY for cross-border payments. “
China’s continued development of the digital yuan – a central bank digital currency sometimes referred to as DC / EP or e-CNY – has set an ambitious pace for global research and possible issuance of CBDCs worldwide.
The country is the largest economy in the world, so far ahead in the development and testing of the CBDC. It has completed numerous advanced pilots on the mainland and announced further plans to encourage adoption of the currency during the Beijing 2022 Winter Olympics.
HKMA has been involved in several collaborative projects since 2017 to investigate the feasibility of the CBDC issue for both domestic interbank payments and cross-border payments. This includes partners such as the Bank of Thailand and the Central Bank of the United Arab Emirates, as well as the PBoC.
Michael Ho, director of financial services at Oliver Wyman and co-author of a recently published report on the digital yuan, has argued that the importance of China’s new currency lies less in the mere fact of increasing digitization and more in the likely “introduction” of a large-scale instant payment infrastructure sponsored by the Chinese government rather than the private sector. “
With the potential for takeover by some of the world’s largest corporations and an increasingly globally connected local population, Ho and co-author Jason Eckberg predict: “If there is an expansion of eCNY to cross-border transactions, liberalization policies will support it further accelerate the RMB as a true global trade flow, bringing both savings and efficiency to cross-border flows. “