P2P functionality missing in Hong Kong’s digital yuan pilot

Hong Kong has initiated a trial program for the digital yuan, which is the central bank digital currency (CBDC) of the People’s Bank of China (PBoC). This marks the first time the CBDC has been deployed outside of mainland China. The pilot program allows Hong Kong residents to conduct transactions using their digital yuan wallets, which can be funded through 17 retail banks using the Faster Payment System (FPS). According to the Hong Kong Monetary Authority (HKMA), this integration with a CBDC is a significant milestone for the FPS. The Digital Currency Institute (DCI) plays a crucial role in enabling interoperability between the FPS and the digital yuan, as it aims to enhance cross-border payments, a key objective of G20 countries. Similar to blockchain protocols, the digital yuan pilot enables 24/7 payments. Eddie Yue, the chief executive of the HKMA, stated that the functionality of the e-CNY application and wallet will gradually expand as the HKMA and PBoC work towards greater adoption among retail merchants. Currently, Hong Kong residents only need their mobile phone number to create an e-CNY wallet, which allows for cross-border payments but not person-to-person transactions. However, the HKMA and DCI will continue to upgrade the e-CNY wallets by introducing real-name verification and facilitating corporate use cases for cross-border trade settlements in the future. While CBDCs offer the potential for greater financial inclusion, concerns have been raised about their intrusive nature. In July 2023, Brazil’s central bank released the source code for its CBDC pilot, revealing surveillance and control mechanisms that allowed the freezing or reduction of user funds within CBDC wallets. Currently, there are at least 140 countries worldwide conducting CBDC pilots, with China’s digital yuan being one of the most advanced. The introduction of the digital yuan pilot in Hong Kong could potentially increase the usage of the yuan, as the PBoC aims to encourage merchant acceptance of the CBDC.