EXPRESS | Collaboration: HKMA and BDF Unlock New CBDC Cross-border Opportunities
Recently on 27 June 2024, the HKMA (HONG KONG MONETARY AUTHORITY) and the BDF (BANQUE OF FRANCE) announced the launch of a wholesale-level central bank digital currency (wCBDC) collaboration. It participated in the second phase of the European Central Bank’s (ECB) Eurosystem exploration[1], making it the leading central bank outside the euro area to participate in the program.
What is HKMA?
The HKMA (HONG KONG MONETARY AUTHORITY) is an independent department of the Government of the Hong Kong Special Administrative Region of the People’s Republic of China, responsible for Hong Kong’s financial policies and banking and monetary management and plays a role similar to that of a central bank, reporting directly to the Financial Secretary.
The HKMA is the organization within the Hong Kong Government structure responsible for maintaining the stability of the monetary and banking systems. Its main functions are:
- to maintain monetary stability within the framework of the linked exchange rate system;
- to promote the stability and integrity of the financial system, including the banking system; and
- to assist in consolidating Hong Kong’s position as an international financial center (including the maintenance and development of Hong Kong’s financial infrastructure and the management of the Exchange Fund).
What is wCBDC?
Wholesale CBDC: The HKMA’s initial exploration of CBDCs focused on wholesale CBDCs. In 2017, the HKMA commenced its CBDC journey with Project LionRock. This was a proof-of-concept (PoC) project that studied potential applications of CBDCs in handling large-value payments and delivery-versus-payment settlements. This project was named after Hong Kong’s most iconic mountain, in collaboration with the three note-issuing banks and the Hong Kong Interbank Clearing Limited.
What does this collaboration represent?
In response to this collaboration, the HKMA and the BDF have signed a Memorandum of Understanding (MOU) to further consolidate their bilateral cooperation and jointly promote the innovative development of the wCDBC and tokenization market.
The two central banking institutions will delve into the study of interoperability between their wholesale CBDC infrastructure (i.e. the HKMA’s Ensemble Project Sandbox[2] and the BDF’s DL3S3[3]), focusing on real-time cross-border and cross-currency payments. This cross-border experiment aims to explore ways to improve the settlement efficiency of cross-border transactions and facilitate interoperability between financial market infrastructures in different regions.
Under the MOU, both parties agreed to strengthen communication and collaboration, as well as to lay the foundation for further application of tokenization and new technologies.
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References:
HONG KONG MONETARY AUTHORITY (HKMA)
BANQUE DE FRANCE
https://www.banque-france.fr/en
[1] The ECB’s Eurosystem exploration work involves exploring the use of new technologies for central bank funding settlements at the wholesale level, with separate experiments using realistic central bank funding settlements and experiments using simulated settlements in a test environment. For more information, please refer to the ECB website: www.ecb.europa.eu
[2] The Ensemble Project Sandbox will further investigate and test tokenization use cases, including the settlement of tokenized real-world assets (e.g. Green Bonds, Voluntary Emission Reductions (VERs), airplanes, electric vehicle charging stations, electronic bills of lading, and treasury management). For more information, please refer to the HKMA’s Ensemble project page: www.hkma.gov.hk/eng
[3] Distributed Ledger Securities Settlement System (DL3S). For more information on the Bank of France’s Distributed Ledger Technology Interoperability Scheme (DL3S), please refer to the European Central Bank’s website.
