CBDCs: People’s Bank of China and the Hong Kong Monetary Authority Testing Digital Yuan

The People’s Bank of China (PBoC) and the Hong Kong Monetary Authority (HKMA) have begun testing its central bank digital currency (CBDC) or digital yuan for cross-border transfers, according to a report in SCMP.

The report quotes Wang Xin, Head of Research at the PBoC, who apparently gave a media briefing on the digital yuan.

China has been testing a digital iteration of its currency for some time now. Reports have filtered in that it is being tested in mainland China – this most recent report focuses on cross-border transactions of the digital yuan.

Xin is quoted explaining that “when conditions are ripe and market demand calls, cross-border transactions in digital yuan can be settled.”

In a recent speech, Howard Lee, Deputy Chief Executive of the HKMA, said that cryptocurrencies and stablecoins have emerged as a new class of assets that could diminish the use of the sovereign currency, and even affect a central bank’s monetary operations.

Lee said that the subject of CBDCs has become a pertinent question and is high on the agenda of the central banking community. Lee stated:

“Apart from being a new and trusted digital means of payment, CBDCs could potentially also foster competition and innovation in the payment sector.
Here at the HKMA, we have been exploring technologies for both wholesale and general purpose CBDCs. At the wholesale level, we see great opportunities for CBDCs to enhance the efficiency of cross-border payments.  Two years ago, we conducted a proof of concept with the Bank of Thailand to develop a DLT-based cross-border corridor network.  Building on this fruitful collaboration and the experience gained, we are taking a further step to create more synergies with other central banks. Under the auspices of the BISIH Hong Kong Centre, the HKMA, together with the Bank of Thailand, the Central Bank of United Arab Emirates, as well as the Digital Currency Institute of the People’s Bank of China, are embarking on a wholesale CBDC project called Multiple CBDC Bridge (m-CBDC Bridge). We aim to, through this m-CBDC Bridge, foster a collaborative environment for central banks and the private sector to further explore the potentials of DLT to improve the settlement and liquidity management efficiencies in cross-border payments.”

Lee indicated that both public and private entities, including two securities exchanges, are engaged in the project. But they have yet to make a decision as to “whether general-purpose CBDCs will be issued.”

In recent statements, US Federal Reserve Chairman Jerome Powell said that 2021 will be an important year for its initiative on CBDCs as they will be engaging with the public including forthcoming events. The Fed obviously does not want to be left behind in the race to provide a digital currency that can reduce friction and cost in the transfer of value – yet difficult questions remain as to potential risk and the impact of the dollar, and other fiat currency, migrating more to a digital method of currency.


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