China Central Bank to Work With Hong Kong Monetary Authority on Digital Yuan

Yi Gang, Governor of The People’s Bank of China, said that the bank would work with the Hong Kong Monetary Authority on the digital yuan. He also notes that privacy is an important factor in design and development.

The People’s Bank of China is working with Hong Kong’s monetary authority to launch the digital yuan. Yi Gang, the Governor of the central bank, announced the initiative in a speech at the Hong Kong FinTech Week 2022. Various Chinese provinces are currently using the central bank digital currency (CBDC).

Yi noted that CBDCs have been attracting more attention in recent years and that the technology could help economies. The Governor said that the central bank was working with the HKMA and other monetary authorities. The focus is to “better serve both global and domestic investors and help to enhance Hong Kong’s role as an international financial center.”

He also said that China would work towards increasing cooperation with international institutions. Yi emphasized that international cooperation would be necessary for a smooth introduction of the technology.

Yi noted that there were challenges, stating that he believed that privacy was one of the biggest issues. This is something China has previously promised to uphold. He explains a two-tiered system for this purpose as follows,

At tier one, the PBOC supplies e-CNY to the authorized operators and processes inter-institutional transaction information only. At tier two, the authorized operators “only collect the personal information necessary for their exchange and circulation services to the public.”

China CBDC Makes Headway

China has one of the most extensive experiments with a digital version of fiat currency. It has already completed many CBDC trials with others well underway, Most recently, the country expanded the CBDC trial to include Guangdong and three other provinces.

The province of Chongqing launched a tax payment pilot for the digital yuan earlier this year. This allows taxpayers to make their tax payments in the CBDC. Such pilots have led to the usage of China’s CBDC increasing by 1,800% in the past 12 months.

Several Countries Complete Cross-Border CBDC Pilot

There have been developments regarding international cooperation on CBDCs, which includes the involvement of China. Twenty banks from regions like China, Hong Kong, Thailand, and the UAE have completed a pilot for cross-border CBDC usage. They executed 164 transactions worth more than $22 million.

Meanwhile, India is set to start a wholesale trial for its CBDC today. The currency will be used for the “settlement of secondary market transactions in government securities.” A retail investor CBDC trial will start within a month.