Hong Kong is moving fast towards crypto evolution and regulation. Today, the city’s central bank announced the development of their own digital coin.
The whole concept of cryptocurrencies and digital coins was born with the stated purpose of freeing people from the grip of central banks. A bit over a decade later, however, central banks are starting to create their own digital coins.
On Thursday evening, Eddie Yue announced the development of e-HKD, short for electronic Hong Kong dollar. Yue is the chief executive of the Hong Kong Monetary Authority (HKMA), an increasingly important player in the crypto world.
Last month, Hong Kong unveiled their framework for cryptocurrencies, opening the city to digital exchanges and facilitating trading for the average user. Hong Kong’s intention of becoming the world’s crypto hub is clear, especially after last year’s fall of FTX which threw crypto exchanges into chaos.
The e-HKD project has received support from several financial institutions, including Bank of China, HSBC and China Construction Bank. Initially, a trial version of the digital coin will be made available to 16 hand-picked firms.
The trial e-HKD will be usable for online and offline payments, as well as an array of Web3 transactions like tokenized deposits and settlement of tokenized assets.
Yue said the HKMA does not yet know when and where to launch the program for wider commercial use.
China’s digital coin
HKMA is not the first central bank to enact a digital coin. In January 2022, the Bank of China launched e-CNY with similar features and purposes of e-HKD.
China has a rather complicated relationship with crypto. Beijing banned any type of crypto transaction in 2021 after banning crypto mining. Nevertheless, China is also one of the leading countries in digital innovation, often used for controversial purposes like facial recognition technologies.
Indeed, China dislikes anything that can run out of control. Since, as we said, crypto’s main purpose was to decentralize finance, China could not afford this type of risk.
For these reasons, it makes perfect sense that China would want to create a centralized, perfectly controllable digital coin like e-CNY.
As a matter of fact, the HKMA said in a paper it will study the implications for a fusion between e-CNY and e-HKD. Hong Kong’s authorities are increasingly being put under China’s own umbrella, despite the high degree of autonomy formally recognized in the southern city.
According to Stanley Chao, managing director of the US-based All In Consulting, linkage between the two digital coins is simply a natural evolution. “Such a seamless process without any banks or commissions involved will, I believe, create millions more cross-border transactions to the point that it could boost Hong Kong’s economy,” Chao said.