Hong Kong, Canada, and Australia Update Their CBDC Plans

Hong Kong has launched the second phase of its central bank digital currency (CBDC) pilot, expanding it beyond a retail Hong Kong dollar to encompass tokenized deposits.

Hong Kong has expanded its central bank digital currency (CBDC) pilot to include tokenized deposits, moving beyond the digital Hong Kong dollar. Meanwhile, Canada and Australia are shifting their focus away from retail CBDCs, with the former scaling down its work and the latter prioritizing a wholesale digital currency.

Hong Kong launches e-HKD+ Phase 2 Commences

The Hong Kong Monetary Authority (HKMA) has announced the commencement of Phase 2 of its CBDC project, which will now be known as e-HKD+. This phase expands the scope of the project beyond the digital Hong Kong dollar (e-HKD) to incorporate tokenized deposits.

The first phase of the CBDC pilot, which was launched in May 2023, involved 16 global firms and focused on programmable and offline payments and settlements of tokenized assets. The HKMA did not commit to issuing the CBDC to retail users at the time, a point that chief executive Eddie Yue has repeatedly emphasized.

The HKMA is approaching the project as an all-encompassing digital money ecosystem with the launch of Phase 2. Hang Seng Bank (NASDAQ:HSNGF) and the Boston Consulting Group are examining the settlement of tokenized funds using digital money on a public blockchain as part of the expanded pilot on tokenized assets. Meanwhile, HSBC (NASDAQ:HSBC) will investigate the use of permissioned blockchains.

The HKMA has enlisted foreign banks such as the Bank of China (NASDAQ:BACHY), Singapore’s DBS, and the China Construction Bank (NASDAQ:CICHY) to explore the use of smart contracts in dedicated fund mechanisms and prepayment instances under programmability. Notably, DBS will test the use of digital money to create a scalable Environmental, Social, and Governance (ESG) reward platform.

The Bank of Communications and China Mobile have joined the pilot to investigate the use of a CBDC stored in a mobile SIM card for offline payments.

“Project e-HKD+ signifies the HKMA's commitment to digital money innovation. The HKMA will continue to adopt a use-case-driven approach in its exploration of digital money. We look forward to working closely with industry participants in Phase 2 to co-create various innovative use cases,” said Yue.

The HKMA will use the findings from the second phase of the CBDC pilot to inform its design, implementation, and operation choices for a digital money ecosystem that accommodates both public and private money.

To expedite development for the participating firms, the central bank plans to establish an e-HKD+ sandbox. This will be a separate project from the existing stablecoin sandbox, which was launched a month ago and includes Standard Chartered (NASDAQ:SCBFF) and Chinese online retailer JD.com (NASDAQ:JD).

Canada, Australia Shift Away from Retail CBDCs

Some leading economies have announced a shift away from retail CBDCs elsewhere. Canada's central bank is scaling down its CBDC work to concentrate on the broader payments ecosystem, while Australia is looking into a wholesale digital currency.

The Bank of Canada announced the shift, stating that it is “scaling down its work on a retail central bank digital currency and shifting its focus to broader payments system research and policy development.”

The bank did not explicitly state whether it had completely abandoned its CBDC work, which began in 2017. However, the Canadian Broadcasting Corporation (CBC) reported that the retail digital Loonie had been abandoned.

The Bank of Canada promised to “continue to monitor global retail CBDC developments and publish some related research.” However, its main goal will be to ensure that Canadians have access to low-cost, efficient, fast, and secure payments.

Australia has also announced a shift away from a retail AUD. Speaking at a recent event, Reserve Bank of Australia’s (RBA) assistant governor Brad Jones revealed that the central bank believes there’s more value in a wholesale digital currency.

“…I can confirm that the RBA is making a strategic commitment to prioritise its work agenda on wholesale digital money and infrastructure – including wholesale CBDC – rather than retail CBDC,” Jones told attendees of the Intersekt Conference in Melbourne.

A retail CBDC, according to the RBA, presents more difficult challenges and has less potential impact on the Australian economy. A wholesale CBDC would be more evolutionary than revolutionary, making it easier for commercial banks and payments firms to adopt, Jones added.

The move by Canada and Australia aligns with a broader global trend away from retail CBDCs. In recent months, central banks in Italy, Germany, Taiwan, and England have all expanded wholesale CBDC projects at the expense of retail alternatives.

This shift was also confirmed by a June report from the Bank for International Settlements (BIS), which found that 81% of advanced economies conducted pilots on wholesale CBDCs, while only 27% explored retail CBDCs.