Hong Kong launches world’s first wholesale CBDC pilot as city positions itself at cutting edge of blockchain evolution

The city’s de facto central bank is testing an ecosystem that includes digital forms of deposits by commercial banks, financial products using distributed ledger technology and central bank money for settlement purposes, said Howard Lee, the HKMA’s deputy chief executive.

The aim of the project is to ultimately create an interoperable platform that can work with systems created by other central banks to increase efficiency, transparency and inclusion of individuals and businesses in the monetary and financial systems.

“We’re calling it Project Ensemble” internally, to conjure a group of items working together, Lee said at a press conference on Thursday. “We hope it will play beautifully, like music.”

The HKMA will set up a so-called sandbox to provide a closed loop for a select group of participants to test their innovations – from concepts to trading and settlement. The sandbox is expected to kick off formally by June, Lee said.

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The HKMA will also form an “architecture community” to develop common standards.

Hashkey Group, one of the first licensed cryptocurrency exchanges in Hong Kong, was the first to announce its participation in the wCBDC project.

Ant Group’s Digital Technologies unit, HSBC and its Hang Seng Bank subsidiary are also taking part.

“Through this project, we will join forces with the HKMA, peers and other industry stakeholders to build the foundation for Hong Kong to become the next generation international hub for tokenised deposits and assets,” said Luanne Lim, CEO of HSBC Hong Kong.

Several use cases exist for wCBDC to resolve pain points in current payment systems. One case is the creation of tokenised electronic bills of lading, which use blockchains to provide real-time and reliable cargo data, improve efficiency and mitigate the risk of fraud.

Another use case could be in investments in tokenised electric vehicle charging stations, which can be broken down into bite-size tokens to improve their appeal, the HKMA said.

Tokenised assets are estimated to reach US$16 trillion by 2030, accounting for 10 per cent of global gross domestic product, according to a 2022 report by consulting firm BCG and Singapore-based digital securities exchange ADDX.

“Hong Kong has always championed innovation and international collaboration,” said Eddie Yue Wai-man, the HKMA’s CEO.

“Project Ensemble will provide fresh impetus to our vibrant financial industry and reinforce our forefront position in tokenised money and assets.”