Digital Hong Kong dollar starts discussions

The Monetary Authority released a discussion paper on "Digital Hong Kong Dollars from a Policy and Design Perspective" on Wednesday (April 27), inviting the public to express their views on the introduction of a central bank digital currency at the retail level in Hong Kong.

The document stated that the design of the "Digital Hong Kong Dollar" requires careful consideration of various factors, and raised a number of discussion issues from different perspectives, such as potential benefits, implementation technologies, payment needs, risk challenges, privacy protection, distribution agencies, and China Unicom's existing payment systems.

The HKMA announced the "Fintech 2025" strategy in June last year, which included "deepening research on central bank digital currency" to strengthen preparations for Hong Kong to issue central bank digital currency at wholesale and retail levels. The "Technical Perspective" white paper discusses the potential technical design plans for the issuance and distribution of the central bank's digital currency at the retail level, and predicts that preliminary ideas on "digital Hong Kong dollars" will be put forward in the middle of this year, which is the main content of this discussion document.

Implementing potential benefits outweighs risks

There is no doubt that a digital central bank currency at the retail level can bring many benefits.

In addition to the points mentioned in the discussion document itself, such as increasing the supply and confidence of central currency, promoting innovation in the digital economy, and improving the efficiency of payment systems, there should also be reductions in the cost savings and environmental benefits of issuing physical currency in the future, as well as expanding the use of electronic technology. Assist in tracing and combating illegal money laundering space, thereby further consolidating the soundness of the entire financial environment.

As for the bureau's so-called consideration of various potential challenges, objectively speaking, it is a bit like a self-inflicted harassment.

The document boldly envisages a scenario in which the "digital Hong Kong dollar" weakens bank deposits, thereby affecting the widening of loan interest rates and affecting consumption and investment.

In addition, the document also pointed out that power or network outages can seriously disrupt the transaction of "digital Hong Kong dollars", but can the rest of today's electronic payment methods and banking systems be independent from the grid?

It is not advisable to discuss too much premise

At the same time, the individual premises set by the HKMA in the discussion paper are also somewhat conservative.

For example, the bureau believes that the existing stablecoins in the market "have not been widely accepted as a payment method by the public" and "have little chance of being widely used in Hong Kong". The circumstances of the case were obviously inconsistent, and disguisedly provided a false rationale for opposing the issuance of the "Digital Hong Kong Dollar".

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On the other hand, when comparing the "Digital Hong Kong Dollar" with other payment methods, the Administration's Discussion Paper specifically marked the different banking channels such as credit cards and "FPS" in addition to physical cash, existing stored value payment instruments such as "Octon" and "Digital Hong Kong Dollar". "The plan also "involves the consideration of service fees." It seems that there are merchants who accept the "digital Hong Kong dollar" and must levy service fees, which may not be completely reasonable from the perspective of convenience and benefit to the people.

Actively decide the direction of development

As for the document stating that "there are not many people without bank accounts in Hong Kong", it also ignores the problem that it is becoming more and more difficult for small and medium-sized enterprises or self-employed companies to open corporate accounts in local banks. It is not unrelated to the fact that few people are unable to produce complete supporting documents.

As the Bank for International Settlements General Manager Carstens said not long ago, such "financial exclusion" deepens poverty, restricts opportunities, and is unable to cope with the difficulties of the unbanked, and the development of digital central bank currencies can help them overcome them. Regarding obstacles, the authorities must take this into consideration when considering the implementation of the "Digital Hong Kong Dollar".

Finally, it must be emphasized that the research and promotion of digital central bank currency is an international trend.

China has launched a number of digital renminbi pilots in the past two years. Although major Western countries such as the United Kingdom and the United States have not officially decided to launch a central bank digital currency, the seven industrialized countries have joined forces in October last year when Hong Kong was still discussing preliminary technical issues. Announced the report "Principles of Public Policy on Retail Central Bank Digital Currency", and the discussion progress is obviously far ahead of us.

The Hong Kong government must actively engage in relevant work, and cannot wait for other areas to make a decision. After all, it is doomed to lag behind.

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