The Hong Kong Monetary Authority just released a report chalking out the future course of action w.r.t. its Central Bank Digital Currency [CBDC]. In the report, the bank revealed that it plans to start laying the foundation blocks.
Wholesale CBDC layer could take 2-3 years to build
As far as the implementation of a retail CBDC is concerned, the report highlighted,
“Alongside our continued work with peer central banks on the application of wholesale CBDC (wCBDC) to cross-border payments, the HKMA has started a study to look at the prospect of issuing retail CBDC (rCBDC) in Hong Kong, i.e. e-HKD.“
On the technology front, the bank is looking to first proceed with the development the wholesale, interbank tier (wholesale layer). As revealed in the technical whitepaper, Hong Kong will be following the two-tier structure. With respect to the timeline, the report highlighted,
“As a first step, we will in about nine months’ time formulate a system development plan, including the project timeline, system design, and resources planning for establishing the wholesale layer. Subject to resources availability, it is expected that a wholesale layer of production grade may take at least two to three years to build.“
The ultimate design of the retail layer will be significantly affected by a wide range of factors. In fact, some of them are still not fully articulated and deliberated. Thus, by first focussing on the wholesale layer, the bank intends to develop a technical foundation that can suit different design choices for the retail layer with relatively little modification further down the road.
HKMA believes CBDC use cases can ’emerge quickly’
Now, it might seem like that e-HKD might not have an imminent role in the current retail payment market. However, the bank believes that the prospective use cases for the CBDC “can emerge quickly out of the rapid evolution, or even revolution, in the digital economy.”
Based on the bank’s recent findings and the comments received from the two rounds
of market consultation, the HKMA “considers it necessary to at least start paving the way for possible future implementation of e-HKD.”
It is worth recalling that the HKMA announced the launch of its e-HKD Pilot Program in May. Around 16 firms from the FinTech sector will take part in the trial run of Hong Kong’s CBDC program. Ripple Labs is the only representative from the crypto space. Its proposed use case revolves around the settlement of tokenized assets. Ripple’s solution will run on a private and secure ledger. That will be built with the same technology as the XRP Ledger [XRPL].