HKMA: Hong Kong inches toward launching wholesale CBDC
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The Hong Kong Monetary Authority (HKMA) has confirmed that the development of a central bank digital currency (CBDC) is high on its agenda. The central bank announced its position in the publication “e-HKD: Charting the Next Steps”, where it discussed the technical and political challenges of launching a CBDC.
According to the report, the HKMA held two rounds of market negotiations with key stakeholders to limit the technical issues and regulatory obstacles they faced. The report found that an overwhelming majority of the 75 participants expressed enthusiasm for the viability of a digital version of the Hong Kong dollar.
However, some concerns were raised with banking regulators, including protecting privacy and identifying new use cases for CBDC. The problems were discussed in the magazine, and HKMA promised to take them into account in the future.
“We are pleased with the positive feedback we received and agree with respondents on the need to take a deep dive into privacy protection and use cases,” said HKMA CEO Eddie Yue.
“As the Central Bank of Hong Kong, we will ensure that Hong Kong continues to play a leading role in the global financial world by preparing in the best possible way for the CBDC and providing the right soil for innovative ideas to grow.” he added.
To achieve its goal, the central bank says it will adopt a three-pronged approach to address all the concerns raised in the market consultation. The first rail covers the legal and technological foundations, precisely the challenges involved in creating both the wholesale and retail layers of a CBDC.
Issues such as application and design are dealt with on the second track, involving a series of test pilots, while the third track concerns the launch itself. The HKMA has yet to release a timetable, but experts believe that a full launch could take up to two years, given the changes the legislature needs to make to give the CBDC legal backing.
CBDCs are plagued by challenges
Central banks around the world are turning to CBDCs to quell the growth of digital assets in their jurisdictions, often citing capital flight as the main reason for their interest in them. Still, among other things, the challenges related to privacy protection, the high risk of cyber-attacks, legislative restrictions and the brokerage activities of banks have plagued the industry.
When Nigeria launched its CBDC in October 2021, e-Naira did not gain momentum as barely a million users created an account on the mobile app. Other countries have had varying degrees of success in CBDC development, and the digital yuan has been widely anticipated.
Despite transaction volumes of more than $10 billion, China’s central bank must contend with allegations that its CBDC is an “espionage tool” in the hands of the Chinese Communist Party.
See: BSV Global Blockchain Convention Presentation, CBDCs and BSV
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