Hong Kong is set to explore a general purpose central bank digital currency (CBDC) in an upcoming project tagged Project Aurum. This was disclosed by the Hong Kong Monetary Authority (HKMA) deputy chief Howard Lee.
Project Aurum
Lee said that CBDCs have been high on the Central bank’s agenda and believes CBDCs would potentially foster competition and innovation in the payment sector.
“The subject of CBDCs, be it wholesale or general-purpose, has been high on the agenda of the central banking community. Apart from being a new and trusted digital means of payment, CBDCs could potentially also foster competition and innovation in the payment sector.” Lee said.
The general purpose CBDC, according to Lee, would be distributed through commercial banks and payment service providers. This would allow the HKMA to study the benefits and challenges of different distribution architectures.
Project Aurum would explore the benefits and challenges of different architectures for the distribution of a general-purpose CBDC. The two architectural models under the project include the hybrid CBDC and private CBDC-backed stablecoin models.
A hybrid CBDC would allow intermediaries such as banks to handle payments while providing direct claims on the central bank. A CBDC-backed stablecoin, on the other hand, would minimize price volatility by pegging to a more stable asset such as fiat currency.
Asia Countries Racing To CBDC Mountain
Hong Kong and Thailand originally started research into cross-border CBDC payments last year. The project revolved around the two countries first, before other apex banks like China and the United Arab Emirates were brought onboard.
Last month, the Bank for International Settlements Innovation Hub in Hong Kong and the central banks announced their collaboration on a “Multiple CBDC Bridge” (m-CBDC Bridge) project to explore using distributed ledger technology to support real-time cross-border payment transactions on a 24/7 basis.
The project aimed to help central banks with cross-border fund transfers, international trade settlement, and capital market transactions. The idea is to alleviate regulatory, cost, and inefficiency pain points in cross-border fund transfers.
Unlike some countries that have been hesitant in developing a CBDC, Hong Kong has been proactive in building digital currency. Other Asian countries are ramping up CBDC development.
Japan recently announced that it would start its general purpose CBDC proof of concept this spring. South Korea just developed a pilot of a blockchain-based CBDC platform for retail use with conglomerate LG Corp.
China has also made tremendous progress in developing a CBDC. The country seems to be leading other countries in the race of creating a digital currency. In recent times, China has conducted mass trials of its digital yuan for retail use by the general public.
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