Hong Kong releases its CBDC whitepaper

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Hong Kong has taken a major step towards a central bank digital currency (CBDC) by publishing a whitepaper for its e-Hong Kong Dollar (e-HKD). The whitepaper outlines the technical aspects of the CBDC as well as policy considerations, including looking at transaction traceability and privacy.

The Hong Kong Monetary Authority (HKMA), which is the de facto central bank of the special administrative region, has been studying CBDCs since 2017. Under Project LionRock, HKMA has explored the feasibility of a CBDC, and what it would mean for its robust financial services sector. It has also joined hands with other countries including mainland China and Thailand to study the use of a CBDC for cross-border payments.

Despite having been studying CBDCs for four years now, HKMA only commenced working on a retail CBDC in June this year, the paper reveals.

With its whitepaper, titled “e-HKD: A technical perspective,” the bank explores “potential architectures and design options that could be applied to the construction of the infrastructure for distributing e-HKD.”

Specifically, HKMA seeks to address issues such as preventing the over-issuance of the digital currency, cross-ledger synchronization, preserving privacy while maintaining traceability, distribution of the CBDC, and more.

The whitepaper, which is a joint effort between the HKMA and the Hong Kong Centre of the BIS Innovation Hub, also lists some of the challenges that the bank will encounter while issuing a CBDC.

They include balancing privacy and traceability, including issues relating to anonymity, pseudonymity, metadata obfuscation, and transaction confidentiality. It will also need to explore interoperability with existing legacy systems as well as work on its scalability, performance, cybersecurity, compliance, and robustness.

Eddie Yue, the chief executive of HKMA remarked, “The Whitepaper marks the first step of our technical exploration for the e-HKD. The knowledge gained from this research, together with the experience we acquired from other CBDC projects, would help inform further consideration and deliberation on the technical design of the e-HKD. We also look forward to receiving feedback and suggestions from the academia and industry to enrich our perspectives.”

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

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