Eighty percent of the world's central banks have developed digital currencies Ba Shusong said that the digital yuan may be used for the "wealth management" of the Greater Bay Area

Speaking at the Asian International Finance Forum on January 18, HKEX Managing Director and Chief China Economist Ba Shusong said that the digital yuan can be applied to the Guangdong-Hong Kong-Macao Greater Bay Area "Wealth Management Connect" in the future, "because of its traceability, it is expected to solve problems that must be solved face-to-face under the traditional framework, such as KYC (Know Your Customer)." ”

The Hong Kong Monetary Authority announced in December last year that it was working with the Digital Currency Research Institute of Chinese Minsheng Bank to study the use of digital yuan for cross-border payments and make corresponding technical preparations.

According to the 21st Century Business Herald reporter, the current relevant technical test is limited to the Hong Kong bank designated by the People's Bank of China, that is, BOCHK, and the invited 200 bank employees and merchants jointly participate in the test to make technical preparations for the use of digital yuan for cross-border consumption.

The epidemic continues to spread around the world and is expected to accelerate the development of global digital currencies. The Bank for International Settlements noted in April last year that operating flexible payment infrastructures, including retail central bank digital currencies, would be even more important in view of public concerns that the coronavirus could spread through cash.

According to data released by the Hong Kong Monetary Authority, as of the end of last year, the registered users of the "Fast Payment System" launched by the HKMA since 2018 had reached 6.9 million, and the transaction volume in December last year increased 10 times compared with the early launch of the system, reflecting the public's preference for using virtual and electronic payment systems under the COVID-19 pandemic.

<h4>80% of central banks are actively researching digital currencies</h4>

In 2019, the Bank for International Settlements and the Committee on Payments and Market Infrastructure surveyed the current state of research on digital currencies by central banks in various countries, and a total of 66 central banks responded to this survey, covering 75% of the world's population and 90% of economic output.

Survey data shows that 80% of the world's central banks are actively studying sovereign digital currencies, of which about 50% are studying both retail models and wholesale models, 35% only retail models, and 15% only wholesale models. About 40% of central banks' R&D work has progressed from the concept research stage to the testing or proof-of-concept stage, and 10% of central banks have carried out related pilot programs.

Bashusong believes that the wholesale model of CBDCs (central bank digital currencies), between banks or between related financial institutions, is mainly used for large-scale low-frequency financial transactions, while the retail model of CBDCs focus on individual needs and are used for daily consumption scenarios.

He pointed out that about 10% of the world's central banks have reached the pilot stage of digital currency development. If the electronic onshore RMB is piloted in the Greater Bay Area, it will promote the internationalization of the RMB and strengthen the liquidity of the RMB due to the traceable nature of the digital currency.

Henri Arslanian, Global Crypto Technology Leader at PwC, said at the same forum: "The implementation of central bank digital currencies can facilitate cross-border payment transactions, and payments will be as convenient as sending out a Whatsapp SMS, and the cost of traditional cross-border payments is currently as high as 7%. The introduction of digital currency will effectively reduce money laundering and corruption activities, and the current global money laundering activities involve an amount of money, equivalent to 5% to 7% of GDP. ”

Hong Kong is the world's largest offshore RMB hub, with 50 to 60 million mainland tourists visiting Hong Kong each year before the pandemic. Ba Shusong said that if the electronic onshore RMB can be piloted in the Greater Bay Area, it will help promote the internationalization of the RMB.

According to the Bank for International Settlements, as of mid-July 2020, at least 36 central banks around the world have announced retail or wholesale CBDC work, and the most advanced CBDC project in the world may be the digital currency electronic payment "DC/EP" project of Chinese Min Bank.

<h4>The LionRock project enters the second phase</h4>

A number of guests attending the forum pointed out that as an international financial center, Hong Kong's cross-border central bank digital currency research under the wholesale model is at the international leading level and has received widespread attention from the outside world.

The Deputy Secretary for Financial Services and the Treasury of Hong Kong, Mr Chan Ho-lian, pointed out at the forum: "The central bank's digital currency can reduce transaction costs and improve transaction efficiency; the direct issuance of digital currency by the central bank can reduce the links involving the issuance of currency by commercial banks, and facilitate the tracking of transactions, reducing illegal activities such as tax avoidance, blackwashing and other activities." ”

He believes that the Mainland Central Bank's digital currency pilot scheme will provide experience for Hong Kong, and is exploring cross-border use of electronic onshore RMB with the HKMA to facilitate the integration of the Greater Bay Area and provide convenience for Hong Kong residents and mainland tourists. Fintech talent will be a key link in line with the new fintech application, pointing out that there are already 600 fintech companies in Hong Kong, while six local universities also offer relevant courses to train talents. In addition, Hong Kong also has good financial infrastructure facilities to meet the relevant development needs.

As early as 2017, Hong Kong has begun research on central bank digital currencies and has become one of the first regions to join the International Settlement Bank Innovation Hub. It is reported that at present, Hong Kong Exchanges and Clearing Limited, 19 banks and five other enterprises will participate in the second phase of the project and pilot operations with actual trade transactions, and the results of the research are expected to be published in the first quarter of 2021.

Bénédicte Nolens, Head of the Hong Kong Centre of the International Settlement Bank's Innovation Hub, revealed at the meeting that the project will expand to more different currencies in the future, and more central banks will participate. However, she acknowledges that since many Asian countries have capital controls, the corresponding cross-border cooperation programs need to be coordinated with countries and need to meet different legal and regulatory needs.

According to the 21st Century Business Herald reporter, the Intihanon-LionRock project, a joint research project on digital currency conducted by the Hong Kong Monetary Authority and the Bank of Thailand, was completed in December 2019, and a total of 10 banks from the two places successfully participated in the development of a proof-of-concept prototype based on distributed ledger technology, and HSBC and virtual bank ZA Bank in Hong Kong also participated in the above research.

The platform plans to develop a "Thai Baht-Hong Kong Dollar Cross-border Corridor Network Prototype" based on blockchain distributed ledger technology, which will enable banks in Hong Kong and Thailand to conduct fund transfers and foreign exchange transactions in a peer-to-peer manner, improving the efficiency and transparency of cross-border capital transfers, while reducing reporting procedures and costs.

For more information, please download the 21 Finance APP