The rise of China’s digital yuan gained momentum and more attention at the end of 2020, partly due to two large-scale digital electronic payment (DCEP) tests that took place in Suzhou and Shenzhen, but also due to recent news that Hong Kong working with China’s central bank to further develop the digital Yuan for cross-border payments.
The Hong Kong Monetary Authority (HKMA) is in talks with Digital Currency Institute, the research unit of the People’s Bank of China (PBOC), to test the DCEP, part of PBOC’s ambitious project to develop digital currency. While there is no time yet to launch the digital Yuan, also known as e-CNY, for cross-border payments, substantial progress is expected in 2021.
The development is significant because once the digital yuan is used in Hong Kong for cross-border payments, this is the first time the new item will be used outside the mainland. China.
Eddie Yue, HKMA chief executive, said in early December that the HKMA is in talks with the Digital Currency Institute on the technical pilot test on the use of the digital yuan to make cross-border payments and the technical arrangements make compatible.
The e-CNY will bring convenience to Hong Kong and mainland tourists, Yue said, “because the renminbi is already in use in Hong Kong and the status of e-CNY is equivalent to money in circulation. ”
There is no timetable for launching e-CNY
Although no timetable for the official release of e-CNY was provided, the financial announcement was influential 21Caijing an HKMA spokesman said the DCEP test will be conducted at Hong Kong’s Bank of China with 200 employees and select buyers in Hong Kong.
This is not the first time the HKMA has explored blockchain-related technologies for payments and financial services. Since 2016, HKMA has been researching distributed volume (DLT) technology. In September this year, HKMA selected ConsenSys, a U.S. blockchain company that develops decentralized payment networks, as a partner to collaborate with the Bank of Thailand in the second phase of the Inthanon-LionRock Project on payments cross-borders.
The Inthanon-Lion Rock Project is important because it was the first one, but it is different from the DCEP development between Hong Kong and mainland China. While Thailand is a valuable trading partner with significant cross-border payments with Hong Hong, this is marred by that from mainland China. But, more importantly, Hong Kong is one of the leading players in cross-border payments in the Hong Kong-Macau-Guangdong Big Bay Area, or GBA.
Great Bay Area is a financial center and technology hub in China, with a population of 70 million and a unified GDP of CNY11.62 trillion (US $ 1.7 trillion) in 2019. It includes 11 cities , comprising two distinct administrative divisions – Hong Kong and Macau – and the tier-one Chinese cities of Shenzhen and Guangzhou.
While Hong Kong wants to be part of GBA development, DCEP digital currency could play an important role for the Hong Kong government as it seeks to revitalize and revitalize the city in the aftermath of the GBA development. social unrest in 2019 and the Covid-19 pandemic in 2020.
“The HKMA feels that the reintroduction of DCEP Hong Kong in the right place, front and center, as Asia’s main financial center, and would support financial operations, would bring companies international back and forth again Hong Kong would undoubtedly become the financial center in Asia, ”said Stanley Chao, managing director of All In Consulting, a Los Angeles-based culture change consulting firm.
In a paper published by the 40th China Finance Forum this week, Zhou Xiaochuan – China’s central bank governor until 2018 – made it clear that the e-RMB has, so far, been misunderstood by the outside world as a central bank digital currency (CBDC).
The DCEP will not be issued directly by China’s central bank, Zhou wrote. Most define CBDCs as being issued by the state. But in terms of China ‘s DCEP, the digital money would be issued by China’ s backward state banks, and the commercial banks – not the central bank – would bear the brunt, according to Zhou .
Hong Kong can reaffirm its status as Asia’s leading financial center
“The DCEP, if successfully and swiftly implemented, can re-establish Hong Kong as Asia’s main financial center and settle any arguments that other places, such as Singapore, Bangkok or even Hainan, could send the SAR resigned one day, ”said Chao.
However, there are still legal challenges in adopting DCEP for cross-border transactions. In addition, the “one country, two systems” rule of law in Hong Kong will be upheld.
Three different legal systems in the GBA make cross-border transactions far from seedless. Macau is based on Portuguese civil law, Hong Kong on British common law, and mainland China on a “social legal system”. The key question of which laws govern cross-border affairs represents an interesting legal legacy.
“Some of the financial laws in Hong Kong could be directly contravened [mainland] Chinese laws, ”Chao said. “Which one to apply? And are international companies comfortable using DCEP with potentially competitive jurisdictions? ”
Furthermore, for Hong Kong’s DCEP system to be successful, expatriates and international companies must have full confidence in the digital yuan in terms of privacy and that any data collected will not be used against them, he said. Chao.
But it is all these uncertainties that make Hong Kong a unique sandbox for testing DCEP and cross-border transactions, Charles d’Haussy, director of strategic initiatives at ConsenSys, said in the earlier interview with Forkast.News.
“I am convinced that 2021 is the year where you will see more and more people with CBDCs in their wallets or within their businesses,” said Haussy. “People may not expect many people in the market to use CBDCs in the hope of not even being aware. ”