Hong Kong Central Bank publishes technical paper on retail CBDC

Hong Kong Central Bank publishes technical paper on retail CBDC

The Hong Kong Monetary Authority (HKMA) has published the central bank's retail digital currency (CBDC) white paper titled "e-HKD: Technical Outlook".

According to the press release, the paper is part of a research paper on the technical aspects of CBDC.

The regulator recalled that in June 2021 it announced the Fintech 2025 strategy, one of the main focuses of which is to study digital currency in terms of readiness for adoption.

In addition to working with other central banks on cross-border use of CBDCs, the Authority has begun to explore the prospect of retail digital currency issuance in Hong Kong (e-HKD). The HKMA's partner is the Hong Kong Innovation Hub BIS.

In the white paper, the regulator revealed potential technical design options for the issuance and distribution of retail CBDCs and presented an architecture that includes an "innovative mechanism to preserve transaction privacy".

The HKMA envisages a two-tier system for such assets: a wholesale layer for CBDC issuance and redemption by the central bank and a retail layer for distribution by commercial institutions in the form of digital money.

The authority in the paper also listed a number of issues for further study of digital currency, on which it has sought the views and comments of academic and industry experts.

"The white paper marks the first step in our technical research for e-HKD. The insights gained from this work, together with the experience we have gained from other CBDC projects, will help inform further consideration and discussion on e-HKD," said HKMA executive director Eddie Yue.

Recall that BIS, in a joint study with a group of central banks, concluded that public-private cooperation is necessary for CBDCs to be effective.

Based on the findings of the mBridge (formerly Inthanon-LionRock) project, the institution said the use of digital currencies in cross-border payments could cut transaction times to seconds and reduce the cost of transactions by 50%.

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