Source: Florian Wehde/Unsplash
Mainland China and Hong Kong are set to jointly launch the first cross-border digital yuan pilot, as the People's Bank of China (PBoC)-led project moves ever closer to implementation.
According to Shanghai Securities News, Howard Lee, deputy chief executive of the Hong Kong Monetary Authority (HKMA), Hong Kong will become the "first cross-border pilot area for the digital yuan outside of mainland China." However, Lee did not set a deadline for this.
Lee explained that "technical testing" has entered a "second stage" ahead of the move. He claimed that the "scope and scale" of HKMA testing had been "widened". He also said that the number of participating commercial banks had "increased from one to four."
Towards the interoperability of the digital yuan in Hong Kong
The PBoC wants to connect the pilot to the economic engine of the nine neighboring cities in the southeast known as the Greater Bay Area (GBA).
Greater Bay Area of China. (Source: Ismoon [CC BY-SA 4.0])
This network of about nine cities includes the aforementioned Hong Kong. Although the latter has technically been part of China since 1997, it retains a special regional administrative status. It also retains its own separate political and economic systems and its own currency.
Lee, who heads HKMA's financial infrastructure and fintech operations, said:
"Hong Kong will continue to fully support the development of digital CNY and promote GBA interconnection. This will increase the speed and efficiency of cross-border payment services.
Lee also noted that a "link exchange" project was nearing completion. This tool will allow the mainland and Hong Kong bond markets to interconnect, and could play a role in further adoption of digital CNY.
In addition, the HKMA and the PBoC are working on a joint Central Bank Digital Currency (CBDC) project with the Bank for International Settlements. Known as the mBridge pilot, this initiative aims to experiment with cross-border payments involving HKMA, PBoC, as well as the central banks of Thailand and the United Arab Emirates.
Twenty commercial banks participated in the project, which was completed by the end of September, with a total of €22 million in transactions processed.
Lee claimed that mBridge is "currently the largest CBDC trial in the world." He noted that the project was the first to "use a variety of CBDCs to make actual deals for cross-border transactions."