Hong Kong serves as a fitting testbed for international payments using the e-CNY, China’s central bank digital currency (CBDC), given its political and economic nuances, industry experts say.
“What Hong Kong provides to China is a perfect experimental halfway house between making the e-CNY global and yet internationalizing it while keeping political control of it,” David Roche, a strategist at Independent Strategy, told Forkast.
The pilot in Hong Kong goes in line with China’s overall strategy to have the former British colony serve as its bridge to the world. For example, Hong Kong has been a primary offshore yuan trading center, with over 70% of offshore yuan settlements being made through Hong Kong, according to a February briefing of the Hong Kong Monetary Authority (HKMA), the city’s de facto central bank.
Now the city is expected to become a laboratory for Chinese authorities to pilot cross-border payments with the digital yuan, which the HKMA said will roll out soon after the Spring Festival.
Roche said Hong Kong is an obvious choice “because for a start, it’s a part of China but has a separate currency,” making it a good test site for the authorities to learn how to make e-CNY international payments.
The upcoming pilot program is just the beginning of a wider implementation for e-CNY’s cross-border use, experts said.
“After an initial focus on retail payments, [the pilot] will later be extended to wholesale transactions,” said Matteo Giovannini, a senior finance manager at Industrial and Commercial Bank of China, the world’s largest bank by assets.
The small scale of this specific pilot initially limited to the Greater Bay Area (GBA) — which connects Hong Kong, Macau and Guangdong province — shouldn’t worry observers that much “since China has always followed a very prudent approach in pilot testing,” Giovannini told Forkast.