Yesterday Mu Changchun, who heads the Digital Currency Research Institute at the People’s Bank of China (PBoC), said the digital yuan trials between Hong Kong and China have moved into a second phase. This links the Chinese central bank digital currency (CBDC) wallets to Hong Kong’s Faster Payments System (FPS). Mr. Mu was talking at a joint seminar between the PBoC and the Hong Kong Monetary Authority (HKMA).
Recapping on the first phase of the tests, these enabled Chinese visitors to Hong Kong to recharge, transfer and spend money using their digital RMB (eCNY) wallets. Trials involved local Hong Kong banks and a limited set of Hong Kong merchants. In China there were also tests enabling Hong Kong visitors to the Luohu District of Shenzhen to use the digital yuan.
At a BIS event in March this year, Mu Changchun first outlined his “do unto others” principles for cross border CBDC trials. These boil down to do not harm (respect monetary sovereignty), compliance and interoperability, and the Hong Kong trials adhere to these principles.
“For example, in the future, when mainland tourists use digital renminbi to shop in Hong Kong, currency exchange will be completed between two wallets, and local merchants will receive money in Hong Kong dollars, so there will be no currency substitution,” said Mr Mu.
“When the epidemic is over and people can freely travel between the Mainland and Hong Kong, the digital RMB wallet will greatly enhance cross-border payments between the two places.”
This project targets retail payments, but both jurisdictions are also involved in the M-CBDC Bridge project (M-Bridge) for wholesale CBDC.
Wholesale CBDC
The M-Bridge project was initiated by the Bank of Thailand and includes the UAE and the BIS in addition to China and Hong Kong. Last month it shared details of the 22 private companies involved and 15 use cases dominated by trade. However, capital market applications are very much on the agenda.
Mr. Mu said the project is exploring integrating with more applications. It “can also bring cross-border payments to Hong Kong banks, exchanges and other institutions,” said Mr. Mu. “(It adds) convenience, stimulates the potential of the local market, and injects innovation momentum.”
The two other major cross border CBDC trials are Project Dunbar between Singapore, Malaysia, Australia and South Africa, and Project Jura between France and Switzerland.